Incapacity Benefit reform

Issue date

20 Jun 2006

Incapacity Benefit reform

No 57 in the TUC welfare reform series

June 2006

Introduction

In January the Department for Work and Pensions published A New Deal for Welfare: empowering people to work, a Green Paper designed as 'the beginning of what must be a national debate on the future direction of our welfare reforms.' [1] Unions have argued for just such a debate for several years, and this report (based on our response to the Green Paper) is designed as a further contribution to that debate.

In June the Department published the results of the consultation, together with an indication of how the Government plans to take these results into account in the Bill it will bring to Parliament. [2] This briefing looks at the proposals for disability benefits because they have been the main focus for media comments, but there are many other important ideas in the Green Paper, and everyone with an interest in social security should read it carefully.

Understanding what is happening

One difficulty with debates in this field is that it is littered with misconceptions. There are three common misconceptions about benefits for disabled people - the number of disabled people in Britain is often under-estimated, Incapacity Benefit is not out of control and there is very little evidence of fraud or widespread malingering.

These misconceptions underlie many calls for a 'get tough' approach to IB reform, but this would be the wrong approach. The Pathways to Work programme, which has achieved great success by supporting disabled people into jobs is a much better approach. Unfortunately, the Department for Work and Pensions budget cuts are a serious threat to the chances of helping large numbers of Incapacity Benefit claimants to return to employment.

How common are sickness and disability?

In the debate about welfare reform one of the commonest mistakes made by journalists and politicians is to look at the history of improvements in medicine and rising standards of living, and to conclude from this that the number of sick and disabled people must be falling.

But this common assumption is wrong: depending on the measure we use, up to a third of people are sick or disabled. Firstly, the 2001 census shows about one person in eleven reporting themselves as having 'not good health':

General health, England and Wales, 2001 (all ages) [3]

	Number	Proportion
Good health	35,676, 210	68.6%
Fairly good health	11,568,363	22.2%
Not good health	4,797,343	9.2%

The census also reports that more than one person in six has a limiting long-term illness:

Limiting long-term illness, England and Wales (all ages) [4]

	Number	Proportion
With a limiting long-term illness	9,484,856	18.2%
Without a limiting long-term illness	42,557,060	81.8%
All people	52,041,916	100%

And the Family Resources Survey shows about one person in three having been ill enough in the previous four weeks to have needed 'something on prescription':

Individuals by medical treatment in the 4 weeks before the interview [5]

Received something on prescription	Visited dentist for NHS examination or treatment	Had an eyesight test	Purchased glasses or contact lenses	Visited hospital for NHS treatment
31%	10%	4%	3%	8%

These figures are for all ages, but the working age figures are surprisingly high. Twenty percent of 35 - 39 year-olds ('prime age' workers) received something on prescription in the previous four weeks, 11% visited a dentist, 3% had an eyesight test, 3% purchased glasses or lenses and 7% visited a hospital for treatment.

Disability is more complicated because it is not the same as either sickness or incapacity for work; despite discrimination, negative stereotypes and poor access most working age disabled people have paid jobs. [6] Disability is also more complicated because it is notoriously difficult to define for statistical purposes. Fortunately, when it comes to working age disabled people, the different estimates that are available produce very similar figures, with between 15.7% and 20% of the working age population being disabled. [7] People are often surprised that there are two and a half million people receiving Incapacity Benefit. But there are also three and a half million disabled people in employment and a quarter of a million unemployed [8] - and these groups are hardly likely to be claiming to be disabled to get themselves an easy life on incapacity benefits.

No one is certain why the number of sick people is higher than some might expect, and no one knows for sure why at least one working age person in six is disabled, but this is undoubtedly the case. One reason may simply be that this is what should be expected in an ageing society: older people are more likely to be disabled:

Adults in Great Britain likely to be covered by the DDA, by age [9]

Age (years)	Millions	Percent
All adults aged 16+	9.8	22%
16-24	0.4	8%
25-34	0.7	9%
35-44	1.1	13%
45-54	1.6	20%
55-64	2.1	30%
65+	4.1	47%

It is sometimes pointed out that Incapacity Benefit claims are higher in some regions, and that these tend to be regions with higher unemployment. It is sometimes suggested that this indicates that these claimants are fraudulent, and that many should be claiming Jobseeker's Allowance instead.

Incapacity Benefit claimants by Government Office Region, Feb 2005 [10]

Region/Country	Number	As a proportion of the local population
Wales	184,900	6.4%
North East	154,200	6.1%
North West	386,700	5.7%
Yorkshire and the Humber	216,300	4.4%
West Midlands	215,400	4.1%
London	275,300	3.8%
East Midlands	154,300	3.7%
South West	160,600	3.3%
East of England	148,600	2.8%
South East	199,800	2.5%

But the fact is that the proportion of the population who are sick or disabled is also higher in these regions.

Proportion of local population who are disabled by region [11]

Region	Proportion of disabled people in local population (%)
North East	26
Wales	24
North West and Merseyside	21
Yorkshire and Humberside	21
East Midlands	21
Scotland	21
West Midlands	19
South West	19
London	17
South East	17
Eastern	16

Proportion of local population with a limiting long-term illness in Wales and English regions [12]

Region/Country	Proportion with a limiting long-term illness (%)
Wales	23
North East	23
North West	21
Yorkshire and the Humber	19
West Midlands	19
East Midlands	18
South West	18
East of England	16
London	15
South East	15

Proportion with 'not good' general health in Wales and English regions [13]

Region/Country	Proportion with 'not good' general health (%)
Wales	12
North East	12
North West	11
Yorkshire and the Humber	10
West Midlands	10
East Midlands	9
South West	9
East of England	8
London	8
South East	7

What is happening to Incapacity Benefit? XE "Permanent and temporary work"

IB is a benefit for people unable to work because of illness or disability, paid at three rates, ranging from £57.65 to £76.45. Additional allowances can increase these amounts by up to a further £60, but 93% of claimants receive less than £100 per week.^[14] As a proportion of average earnings, the Incapacity Benefit paid to a single person who qualified for the long-term rate fell from 17.4 per cent in April 1995 to 14.7 per cent in April 2004. ^[15]

Contrary to received wisdom, the number of people who are getting Incapacity Benefit is falling, not rising. As we have already seen, there is a certain amount of confusion caused by the fact that sometimes the government talks about 'Incapacity Benefit' when what it means is 'incapacity benefits' - including Income Support paid to working age disabled people. It is the latter that has grown, not Incapacity Benefit.

As we can see, only one of these benefits is called Incapacity Benefit, but IB, SDA and IS with a disability premium are frequently referred to as 'incapacity benefits'. All too often, discussions about benefit reform begin by pointing to the growing number of people getting benefit, and then moved on to discussions about how best to reform IB.

This glides over a key fact: the number of people of IB claimants has grown only slightly. If we take IB and SDA together (and the two have effectively been merged since 2001) it is falling:

Numbers of IB and SDA claimants [16]

Benefit	May 1997	Feb 2005	Change
Incapacity Benefit	2,370,500	2,387,000	+ 16,500
Severe Disablement Allowance	368,700	295,000	- 73,700
Net	2,739,200	2,682,000	- 57,200

More importantly, we need to distinguish between the number of people who claim a benefit, and the number who actually receive it. During the same period the number of beneficiaries of both IB and SDA has fallen :

Numbers of IB and SDA beneficiaries [17]

Benefit	May 1997	Feb 2005	Change
Incapacity Benefit	1,732,700	1,444,800	- 287,900
Severe Disablement Allowance	367,100	294,400	- 72,700
Net	2,099,800	1,739,200	- 360,600

We need to distinguish working age beneficiaries from those over pension age. A major element of this debate is about how best to move people from 'incapacity benefits' to employment, and this is not applicable to those over retirement age. Rule changes have drastically reduced the number of beneficiaries over state pension age, and this age group accounts for nearly half the reduction in the number of beneficiaries. But even if we limit ourselves to beneficiaries of working age there has still been a large reduction for both benefits:

Numbers of working age IB and SDA beneficiaries [18]

Benefit	May 1997	Feb 2005	Change
Incapacity Benefit	1,560,400	1,444,800	- 115,600
Severe Disablement Allowance	328,500	250,900	- 77,600
Net	1,888,900	1,695,700	- 193,300

Finally, official data for the 'flow' of people onto Incapacity Benefit show that, far from being out of control, the number of people starting a claim for the important long-term rate of the benefit has been very steady indeed. The figures for everyone starting a claim (i.e., including short-term rates of the benefit) show a significant fall, of about a quarter over the last eight years:

IB commencements in first quarter, 1998 to 2005 [19]

Date	All Incapacity Benefit	Incapacity Benefit (long-term)
1998	209.7	8.0
1999	198.1	6.3
2000	190.4	7.4
2001	186.2	7.5
2002	173.1	7.3
2003	173.5	7.8
2004	167.4	7.4
2005	127.6	6.7

The number of people receiving Income Support with a disability premium has risen substantially in recent years - from 827,000 in May 1997, to 1,124,000 in February 2005, [20] an increase of 297,000, though this figure includes children receiving the Enhanced Disability Premium brought in by the current government (i.e., the result of a policy change and therefore presumably intended) and the increase in the number of working age beneficiaries will be a little smaller.

We should not, therefore, be surprised to find that spending on Income Support for working age disabled people is higher than it was eight years ago, though it is worth noting that is has been quite stable for three years :

Expenditure on IS for long-term sick and disabled people under 60 , GB, 1997/8 to 2007/08 (£million, 2005/6 prices) [21]

	97/98	98/99	99/00	00/01	01/02	02/03	03/04	04/05	05/06	06/07	07/08
total	3,163	3,396	3,604	3,952	4,332	4,346	4,567	4,704	4,649	4,468	4,194

To summarise: the number of claimants of IB has risen slightly, but the number of claimants of IB and SDA together has fallen, and the number of beneficiaries has fallen even more, even when we limit our scope to people of working age; spending on IB and SDA has fallen; the numbers receiving Income Support with a disability premium has risen, and spending has fluctuated, but risen overall.

Fraud

Incapacity Benefit fraud is rare. The 2001 Benefit Review of IB found that fraud levels were so low the review team did not have enough examples to measure them properly, and had to rely on an estimate instead, producing a figure of less than one percent. The most recent measurement exercise produces an even lower figure, of 0.1%, the lowest of any major benefit. Incapacity Benefit accounts for six percent of benefit spending, but just one percent of benefit fraud:

Benefit spending and fraud, by benefit, 2004-5 [22]

Benefit	Spending (£bn)	Spending on this benefit as a proportion of all benefit spending	Fraud (£bn)	Fraud in this benefit as a proportion of all fraud	Fraud as a proportion of spending on this benefit
Income Support	10.0	9.0%	0.25	27.2%	2.5%
Jobseeker's Allowance	2.2	2.0%	0.07	7.6%	3.0%
Pension Credit	6.1	5.5%	0.06	6.5%	1.0%
Housing Benefit	13.1	11.8%	0.21	22.8%	1.6%
Disability Living Allowance	8.1	7.3%	0.04	4.3%	0.5%
Retirement Pension	48.8	44.0%	0.03	3.3%	0.1%
Carer's Allowance	1.1	1.0%	0.04	4.3%	3.9%
Incapacity Benefit	6.7	6.0%	0.01	1.1%	0.1%
Instrument of payment fraud			0.04	4.3%
Interdependencies			0.01	1.1%
Council Tax Benefit (estimate)	3.6	3.2%	0.06	6.5%	1.6%
Other unreviewed benefits	11.4	10.3%	0.1	10.9%	0.9%
TOTAL	£110.9	100%	£0.92	100%	0.8%

The Department is suspicious of the fact that many claimants move on to IB from Jobseeker's Allowance, not directly from employment. In 2001 DWP commissioned a study of people moving between JSA and IB, which failed to find evidence that these moves are fraudulent:

'Moves from JSA to IB/IS among claimants in our sample mostly seem to have been appropriate, and were usually caused by the onset, recurrence or deterioration of a health problem. Both BA and ES staff allege a range of situations in which this move is made inappropriately in an attempt to manipulate the system, but there were few signs of this in the research. Such cases no doubt exist and should be dealt with, but we suspect they may be fairly marginal in numbers.'^[23]

The policy debate

The government has, for some time, been preparing for a new round of substantial welfare reform, addressing benefits policy for working age people who are out of work and on benefit, but not classified as unemployed, and especially focusing on Incapacity Benefit. In the period leading up to the publication of the Green Paper, there were media leaks suggesting that a much tougher benefit regime for sick and disabled people was planned. The TUC responded by arguing for a supportive approach, expanding a successful pilot project and investing in active labour market programmes for disabled people.

The TUC has also been concerned about some of the missing elements of the debate so far. Firstly, in all the debates about the rights and responsibilities of disabled people there has been very little mention of employers' duties. But we know that discrimination is a major cause of the lower employment rates disabled people face, that extra attention paid to prevention and rehabilitation could make a significant difference to the scale of the problem, and that fair and flexible work opportunities could open up many jobs to sick and disabled people and others currently outside the labour market.

Secondly, there has been very little discussion about how the government intends to deliver its planned reforms. This is the subject of the least developed section of the Green Paper, and it is not entirely clear what is planned; but it does seem that some measure of privatisation is a very real possibility. The extension of Pathways to Work is to be delivered by private and voluntary sector organisations, and it is likely that the plans for cities will involve further contracting-out of work. This would put at risk the employment of sick and disabled people and undermine Britain's capacity to plan social policy delivery rationally. We are also concerned that no guarantees have been given about the jobs of people currently working in Jobcentre Plus.

Thirdly, there is a real danger of under-resourcing this stage of reform. The only additional resource that has been identified is £360m, earmarked for the extension of the Pathways to Work programme. Every commentator is agreed that the dramatic expansion of assessments outlined in the Green Paper will require substantial further investment.

The TUC also sees the Green Paper as an opportunity for articulating a positive approach, moving from the old paternalism and the more recent (but equally old-fashioned) managerialism, towards a vision of enabling welfare. The welfare state, if it is to survive, must address the challenges of an ageing population, globalisation and rising inequality and meet people's aspirations for more satisfying, healthy and fairly rewarded work.

The government's employment policy

Helping working age people into paid work is the centrepiece of the government's anti-poverty strategy, and real progress has been made on this objective since 1997. There are now 2.3 million more people in work, and policies such as the New Deal programmes, the National Childcare Strategy and increased rights for disabled people have all made a significant contribution. But much remains to be done, especially for workless families and economically inactive individuals, especially those receiving Incapacity Benefit. The government has declared that it has an aspiration of raising the employment rate from 75% to 80%; this will mean reducing the numbers on IB by 1 million, helping 300,000 lone parents into employment and increasing the number of older workers by 1 million. The organising principles for the reforms to achieve this will continue to be a balance of rights and responsibilities and 'work for those who can, support for those who cannot.'

The TUC strongly supports the government's aspiration towards an eighty percent employment rate. In 1994 the TUC challenged the political parties to commit themselves to achieving full employment as a prime economic goal. At the time we were widely ridiculed, full employment, we were told, was never again going to be a realistic policy. Today, with an employment rate of 75%, full employment no longer seems an unreasonable objective. So the TUC will never criticise the government for setting itself challenging employment objectives. Unemployment is a major cause of ill health, social exclusion and poverty, and we wholeheartedly welcome the 80% aspiration.

Plans for Statutory Sick Pay

The proposals for Statutory Sick Pay were among the most welcome elements of the Green Paper. The government was concerned about the complicated records employers have to keep to make SSP work, and proposed removing the need for most of them by abolishing the current three waiting days before an employee becomes entitled to SSP, which would then be 'payable on the first day a person is sick for work.' [24]

This was a tremendously welcome proposal; for those workers in low paid or unorganised industries, who often are offered nothing better than SSP, the cut represented by not getting it for three days can be a serious problem. Requiring employers to pay from day one would also have encouraged them to be more careful about managing absence. The TUC argued very strongly that the paperwork involved in administering SSP was necessary to protect workers with chronic conditions and part-time workers who would otherwise be unfairly hit by the waiting days rule. Abolition of the paperwork whilst retaining waiting days would be tremendously unfair (and possibly contrary to EU law).

Unfortunately, after intense pressure from employers' organisations, the Government surrendered and withdrew this proposal altogether. This is tremendously disappointing, and means that one of the main reasons for supporting the planned reforms has now disappeared.

Reforming Incapacity Benefit

The central feature of the Government's proposals is the plan to introduce the Earnings and Support Allowance (ESA), which will replace Incapacity Benefit and Income Support for working age disabled people. The ESA will mirror Jobseeker's Allowance in having two routes to entitlement; some people will qualify on the basis of a means test, others will qualify if they have paid enough National Insurance Contributions.

The ESA will have two tiers - for a minority of claimants, with the most significant conditions, a higher level of benefit will be achieved through a Support Component; all others will be on a lower tier receiving what was originally going to be called the Employment Support Component. The Government now accepts that these names are too similar, and the lower rate will be called the 'Work-Related Activity Component'. The Government has refused, however, to alter the two-tier design.

For most people the new benefit will be conditional upon taking part in work-focused interviews and completing an action plan, which will include work-related activities. Those who fail to do this will face a reduction in their benefit, eventually to the same level as Jobseeker's Allowance. People whose conditions have the most severe impact will not face the same obligations, and will receive a higher level of benefit.

The Green Paper indicated that existing claimants would remain on their current benefit level, but would be required to attend work-focused interviews more frequently, and, like other claimants, would have to attend regular Personal Capability Assessments. The Green Paper also announced that, by the time the new benefit is introduced, the government intends to have completed a nationwide extension of the Pathways to Work programme (which currently covers a third of the country).

In the following sections we look at the proposals in greater depth.

Assessment

The Green Paper announced that the Personal Capability Assessment (PCA| - the gateway to IB) is to be reformed to give 'a professional assessment of an individual's eligibility for financial support based on their functional capability' and to identify the people for whom 'work-related activity' is appropriate (and for whom it will be mandatory), and those for whom it would be unreasonable to require such activity.

In the TUC welcomed the shift to assessing severity of impact as a move towards a social definition of disability, and as recognition of the fact that you cannot 'read off' a person's ability to do a job from a medical diagnosis of their condition. A fully social definition would also incorporate into assessments the impact of local labour market conditions and other personal factors, but unfortunately the Government's plans do not go that far.

The Government's response to the results of the consultation on the Green Paper announced that review groups had been created 'to look in more detail at the mental health and physical components of the assessment and at the evidence-gathering and reconsideration processes. We will also develop the new element to the assessment that will identify what an individual can do and the help they need to manage their condition and make a successful return to work.' [25]

For the TUC this is an important point, because the assessments will be tremendously important. They will determine, firstly whether someone qualifies for the benefit, and secondly whether eligible individuals are required to engage in work-related activities. [26] Only people who are not required to engage in work-related activities will receive the new Support component of ESA, so the assessments will also determine the rate of benefit people receive. [27] The assessment will also determine the work-related activities people are required to undertake, and the support that will be offered to help them return to employment. [28]

So much is required of this assessment that it is no exaggeration to say that the success or failure of the whole reform depends upon its success; we continue to have very serious concerns.

Firstly, the current test (the Personal Capability Assessment) has never solved the contradiction inherent in a test that, at the same time, checks whether claimants are incapable of paid work and assesses the help they need to move into jobs. Unfortunately, the Green Paper merely asserts that this paradox will be resolved:

'We will also develop proposals so that the assessment distinguishes between eligibility for the benefit and capability for work.' [29]

Secondly, the Department has failed to bring forward evidence to show that there is a dividing line between people who can and cannot be reasonably expected to move towards paid work. It is even more doubtful that a test can be devised that settles the issue objectively for individuals. We have become more concerned about this issue, not less, since the publication of Prof Richard Berthoud's research, [30] which found that there is 'no clear dividing line between disabled people who can work and those who cannot.' His study concludes with three significant sentences on the implications for policy:

'Perhaps, though, the analysis should encourage government to adopt rather less ambitious targets, at least in the short run. If it was thought that 'most' IB claimants had minor impairments, it might have been hoped that 'most' of their employment disadvantage could be eliminated, and that the majority of claimants could return to work. Reducing employment disadvantage seems a more realistic objective, which would result in 'many' more claimants returning to work.' [31]

Thirdly, we are concerned because the Department has got this wrong several times in the past. As Mind has commented, 'the system is totally inadequate as a way of imposing a decision of such profound consequences.' [32]

PCA medical examinations (more than half a million are carried out each year by Atos Origin for the DWP) are particularly problematic. The National Association of CABx' recent report What the Doctor Ordered? noted Atos Origin's tendency to carry out rushed or incomplete examinations, which are then relied upon to deny claimants benefit. NACAB noted that 'doctors frequently appear not to give sufficient consideration to mental health problems' and are even 'reporting incorrectly what the claimant has said about their own conditions.' [33]

As the National Audit Office has commented 'with a fifth of benefit decisions containing errors of some kind [there is] scope for improvement in the quality of decision making.' [34] The TUC is particularly concerned that medical reports that have been graded in audit at 'C' ('key requirements are not satisfied to the extent that the product fails to meet Medical Services Professional Standards') have been used to deny claimants their benefits. [35] These problems indicate that use of private companies is not always a guarantee of high standards, and set an unacceptable standard that must be bettered if the proposed reforms are to be operated fairly.

It cannot be emphasised enough that this new benefit system can only be operated fairly if the assessments are fair and accurate and that this will require extra resources. The only new resources identified for the Green Paper (raised from savings on information technology) are £360m already earmarked for the extension of Pathways to Work. Without extra resources the assessments cannot be operated fairly, and the planned benefit reform should not be proceeded with. Assessments cannot be done 'on the cheap' by farming them out to specialist voluntary organisations and charities, as these organisations are dubious about whether it would be right for them to engage in such an exercise, which might endanger the support of their key constituency.

Access arrangements

It is disappointing that the Government's response to the results of the consultation on the Green Paper does not take on board disability organisations' continuing concerns about access arrangements. The ESA will apply a much tougher regime of rights and responsibilities, with benefit sanctions for those who do not comply; in these circumstances, accessibility of Jobcentre Plus and Atos Origin premises and of the system as a whole is very important.

This cannot be taken for granted, even though disabled people have been making these points to the Department for some time. Information materials and forms should therefore be available in the full range of accessible formats; work-focused interviews and other meetings with JCP staff (or officials of other organisations on contract to JCP) should be accessible, medical assessments, provision detailed in an action plan and appeals arrangements should all be accessible. This includes documentation available in alternative formats, sign language interpretation and/or palantype, wheelchair accessible buildings and rooms, trained and aware staff. It is not enough that accessible forms should be available; forms completed in Braille, on tape or submitted electronically should be accepted.

Benefit rates

The Green Paper does not give any rates for the new benefit structure, but it is already clear that there will be both gainers and losers when compared with the current system. The Green Paper promises to 'protect the level of benefits of existing claimants', [36] though the Government's response to the consultation makes it plain that they will be moved over to the new system. [37]

In its response to the Green Paper the TUC raised a number of issues around benefit rates. One concern was the position of young people, and here there has been a significant concession. The TUC was very worried that the Government planned that the ESA should follow Jobseeker's Allowance in paying a discriminatory lower rate to under-25s, and a lower rate still to under-18s. [38] The TUC also raised the uncertain position of people who become disabled early in life, who currently qualify for contributory benefit without meeting NIC conditions, and were not mentioned in the Green Paper.

In a very important compromise, the Government, in their response to the consultation, announced that 'it is not our intention to penalise young people, and therefore everyone in the main phase of the Employment and Support Allowance will get the same basic allowance - regardless of age. Additionally, we have decided that young people will also have special provisions to gain access to contributory Employment and Support Allowance without the necessary contribution record, as is now the case with incapacity benefits.' [39] This is very welcome news, though it means that young people in the assessment phase will still be significantly worse off.

There is no such good news, however, in relation to people waiting for the Personal Capability Assessment. Claimants who come off Statutory Sick Pay and are waiting for their assessment 'will receive the basic level of Jobseeker's Allowance.' [40] For most claimants this will be £12 less than SSP, which means that people who have been ill will find that, after 6 months, their income falls by 17.5%. The TUC opposes this provision, as this fall in income will be stressful, damaging to health and a cause of social exclusion. The government plans to carry out PCAs within 12 weeks, which means that people will be waiting for up to three months on this low level of income - if the government succeeds in hitting this target. The Government has refused to change this policy.

On two points the position is still unclear:

Carers and bereaved people. The Green Paper says that the basic allowance element of the ESA will be 'set at basic Jobseeker's Allowance level'. [41] It is still unclear whether this will include the carer's and bereavement premiums.
People with more severe impairments. The means-tested version of ESA will not include the current IS disability premium, but the enhanced and severe disability premiums will continue to be available for those who qualify. The position of couples who each qualify for the disability premium, and who currently receive a couple rate set at twice the individual rate is still unclear, and the TUC would welcome a guarantee that partners in such couples will qualify for the single person rate.

Delivery arrangements

The Green Paper states that these reforms 'will need to engage private and voluntary sector providers. We will invite bids for outcome-based contracts as we roll out Pathways to Work nationally.' [42] The Green Paper envisages consortia of local partners working to align different funding streams covering skills, employment and health; 'this may include local authorities, employers, learning and skills councils, regional development agencies, primary care trusts and Jobcentre Plus ... each consortium will be expected to use private and voluntary sector providers to deliver additional investment and employment support under contract.' [43] Ministers have not yet guaranteed that JCP jobs are safe from redundancies over and above those needed to implement the efficiency review, and the consultation process has been followed by very little change in the Government's stance.

The TUC is worried about the possible threat to the continued existence of a public employment service in this country. Jobcentre Plus has benefited from working in partnership with voluntary sector organisations in delivering active labour market programmes, especially where these organisations have brought in expertise with particular client groups. This is an entirely different matter from handing the whole venture over to private and voluntary sector.

The TUC has entirely reasonable concerns about the jobs, pay and working conditions of civil servants. We fear that, in a system mainly delivered by the private and voluntary sector, companies and charities would eventually come to compete for contracts on the basis of lower pay, increases in unpaid overtime and in the pace and intensity of work, with deteriorating health and safety as a consequence. Such deterioration in thousands of people's jobs could not be a good outcome.

It is worth bearing in mind the fact that, in value-for-money comparisons with the private and voluntary sectors, the civil service faces a constraint that is missing for them. Non-state contractors have the flexibility to use savings in one part of their contract to pay for extra resources in another. When Jobcentre Plus, on the other hand, helps a client into a job earlier than expected the savings just disappear into a black hole, releasing no resources for innovation and experimentation. This is not an inevitable feature of public sector service delivery - one reason we supported the government's Building on New Deal proposals (a plan for radical decentralisation and personalisation of the New Deal programmes) was the opportunity they offered for incorporating greater flexibility into public active labour market programmes. BoND has, unfortunately, been on the back burner for some time, but we would wish to see it introduced as a step towards giving Jobcentre Plus the opportunity to compete on something more like equal terms.

Despite this disadvantage, the efficiency record of the public sector is actually rather good. When measured in terms of output per hour (the best efficiency measure of productivity) productivity in 1999 in UK non-market services was 19% higher than in the USA and 15% higher than in Germany. By contrast, in market services the UK was 30% behind the US and 17% behind Germany. This non-market sector performance was remarkable, given that investment was higher in these countries: capital per hour worked was 80% - 90% higher in Germany and the USA. [44]

The TUC is especially concerned about the possible impact of contracting out and privatisation on unemployed and economically inactive people, and the possibility of a 'race to the bottom.' This could happen, as the lowest price submitted by any competing agency could become the highest price other agencies would feel it was safe to bid; providers would then obviously find it in their interests to avoid spending more money than was needed to meet the minimum quality criteria specified in the contract. There would then be an incentive to move people off benefits quickly, which could lead to claimants being treated unfairly or harshly. Unions would therefore be particularly concerned about contractors being given the responsibility for making decisions about benefit sanctions.

This need to move people quickly into jobs to meet contract terms could also lead to over-reliance on entry-level jobs, regardless of whether or not this meets clients' aspirations; this in turn could bring more people into the 'low pay - no pay' cycle, as jobs that do not meet clients' aspirations tend not to be sustained. Another possible strategy would be for providers to identify the most job-ready clients, concentrate on them, whilst ignoring those with more problems - 'creaming' and 'parking' as this is known. If this happened there would be a risk that those groups subject to discrimination - such as black or disabled people - would be especially likely to be 'parked'.

The experience of Employment Zones suggests that these concerns are not unreasonable. Although the authors attempt to place their findings in a positive light, the results of the first qualitative evaluation of EZs were troubling, and the relevant paragraph is worth quoting in full:

'Another benefit of the Zone model, sometimes seen as a disadvantage, is that the Zones are forced to look seriously at the segmentation of their customer group. Output-related funding ensures that it is in the business interests of contractors to assess what their future income stream from clients might be, raising the danger of just 'maintaining' people who are a bad employment bet. However, the early assignment of broad job probabilities to individuals is an attempt to manage strategically the flow of investments to a diverse client group. The study found that output-related funding has encouraged:

'informal segmentation into clients 'job ready'; 'near job ready'; 'not job ready' or unemployable categories. The latter refers to those deemed unlikely to get jobs - and hence secure outcome payments - during the 26 weeks available to Step 2 (managers reporting between 25% and 40% of clients are in this group);
'a broad range of investment in the near and not job ready groups, although initial assessments often require adjusting as the PA develops more of a relationship with the client. From the start, Zone contractors have appreciated that the key to making profits has been to strike a balance between concentrating PA resources where they can make most difference and serving the needs of the wider client group;
'identification of a substantial minority with needs insurmountable within the time-scale and resources available. There are indications that these clients, particularly those with drug, alcohol or mental health problems, are also represented on mainstream programmes where the incidence of 'unemployable' clients is shielded by case management or referral processes;
'strategies to help manage the financial risks posed by this hardest-to-help group (fortnightly interviews with minimum additional help, or referral to non-charging voluntary organisations or other benefits). Substantial investment is only made if the client is offered a job interview.' [45]

More recent research has indicated that, while EZ providers are no longer systematically 'parking' less job-ready clients, they do concentrate their efforts on those who are most enthusiastic:

'While a few advisers did admit to focusing on 'easy hits,' generally speaking, the amount of time and money invested in any one client is determined by how responsive and demonstrably committed to working the client is.' [46]

This may be less discriminatory, but it is still a selection process which will tend to benefit those who are already most advantaged. And, whatever may be true of EZs, recent evaluation of the Action Teams for Jobs - which is paid for using the outcome-related funding the government favours for implementing the Green Paper reforms - found that creaming and parking continue to be a problem in that programme:

'The main advantage of outcome-related funding for PSL teams was seen to be the clear focus on moving clients into employment rather than focusing on soft outcomes. Conversely, the main disadvantage was felt to be that it incentivised working with easier-to-help clients, as there was little incentive to help those with multiple barriers closer to employment. In terms of the Action Team funding system as a whole, the main advantage seen by Jobcentre Plus and PSL teams was the flexibility, enabling teams to respond to client needs and to prioritise resources effectively for their local area. The main disadvantage cited by Jobcentre Plus teams related to recent decisions taken at District level to prioritise resources on areas of provision other than Action Teams. The main disadvantage of the funding system cited by PSL teams was the lack of funding for 'distance travelled'.' [47]

Overall, the Private Sector Lead Action Teams were out-performed by those from Jobcentre Plus:

'The 25 PSL teams as a whole only met 78 per cent of their job entry targets in year one of Phase 3 of Action Teams, compared to the 40 Jobcentre Plus teams, as a whole, who achieved 140 per cent of their job entry targets. PSL teams, as a whole, achieved 69 per cent of their outcomes from non-JSA customers, compared to Jobcentre Plus teams, as a whole, who achieved 76 per cent (again, exceeding the target of 70 per cent). PSL teams, as a whole, moved into work proportionately more clients who had only been out of work for a short time than Jobcentre Plus teams. They were also proportionately more likely to work with clients with just one of the target disadvantages than Jobcentre Plus teams, as a whole, were.' [48]

We are also concerned about the risk that private sector organisations may treat personal information about clients simply as another business asset. Identity fraud is a serious problem, and private sector organisations' security standards may well not be as high as those in the public sector. Many claimants will be much more uncomfortable about giving sensitive information to a representative of a private company than to a public servant.

The public interest in maintaining a public employment service also has a geographical dimension, with the loss of the public sector commitment to maintain a nationwide presence, regardless of how unprofitable it might be to operate in any given district. Further, there would be a real risk of the loss of transparency in public services, as more and more important information about the performance of government policies became inaccessible because it was 'commercial-in-confidence.' And, finally, there is a strategic issue, as the loss of a public sector presence in delivery can impair policy development, as feedback from the operational end of the benefit system is lost.

The Australian experience indicates some of the dangers of privatisation for voluntary organisations. (In 1998 the Commonwealth Employment Service was wound up, and replaced by the private and voluntary sector delivered Job Network.) As the Australian Council of Social Service has noted, community organisations and charities participating in delivering formerly public services come under the same budget pressures the public sector previously faced, forcing them to become more 'business like', making them reluctant to criticise government policy and thus endangering their ethos. Organisations that used to develop new ideas and meet unmet needs are now so busy with 'core business' that their role as the spice in the national recipe has disappeared, a factor that is increasingly worrying voluntary organisations:

'The role of non-profit community organisations is reduced to providing a function or service defined by government for the best possible price (which may or may not be set by government). Some go so far as to argue that the theory itself prevents a greater role for 'providers' in identifying needs and developing solutions to meet them, because such a role might be construed as a 'conflict of interest' or 'unfair advantage' when the time for distributing funds arrives.' [49]

In an outcome-related funding system, small organisations cannot risk becoming involved in uncertain programmes that do not guarantee that their start-up costs and overheads will be covered. Larger charities and companies, on the other hand, have the resources to balance this risk against the likelihood that ORF will provide them with sufficient income to meet these costs. A major expansion of private and voluntary sector contracting, but funded on an ORF basis could therefore lead to fewer partner organisations working with JCP and less variety. The loss of variety certainly seems to have been the Australian experience.

Notes

[1] A New Deal for Welfare: empowering people to work, DWP, 2006, ('the Green Paper') p iv.

[2] A New Deal for Welfare: empowering people to work, consultation report, DWP, 2006.

[3] Calculated from 2001 census data, Table UV20 accessed at http://neighbourhood.statistics.gov.uk/ on 21/09/2005 16:01

[4] Calculated from 2001 census data, Table UV20 accessed at http://neighbourhood.statistics.gov.uk/ on 21/09/2005 16:11

[5] Taken from Family Resources Survey, 2003 - 4, ONS, Table 2.21.

[6] Calculated from Disability Briefing, Disability Rights Commission, June 2005, table 1.

[7] Review of Disability Estimates and Definitions, M Bajekal, T Harries, R Breman and K Woodfield, DWP In-house Report 128, 2004, pp 2 - 3.

[8] Disability Briefing, Disability Rights Commission, June 2005, tables 1 and 2.

[9] Family Resources Survey 2002-03, quoted in Disability Briefing, Disability Rights Commission, Dec 2004, p 34.

[10] Calculated from 2001 census data, table UV01, accessed at http://neighbourhood.statistics.gov.uk on 26/09/2005 12:56 and Incapacity Benefit and Severe Disablement Allowance Quarterly Summary Statistics: February 2005, DWP, table 1.6, excluding overseas claimants.

[11] Autumn 2004,LFS data, not seasonally adjusted. Disability Briefing, Disability Rights Commission, June 2005, table 7.

[12] Calculated from 2001 census data, Table UV22 accessed at http://neighbourhood.statistics.gov.uk/ on 23/09/2005 15:27. Data not available for Scotland.

[13] Calculated from 2001 census data, Table UV20 accessed at http://neighbourhood.statistics.gov.uk/ on 23/09/2005 15:48. Data not available for Scotland.

[14] Calculated from figures obtained from Work and Pensions Longitudinal Study, DWP Information Directorate, http://193.115.152.21/100pc/ib/amtgp/ccsex/a_carate_r_amtgp_c_ccsex_aug… accessed on 27/02/2006 18:14.

[15] Abstract of Statistics, DWP, 2004, table 5.5. There are similar falls for people with dependents and those with adult dependants.

[16] Incapacity Benefit and Severe Disablement Allowance Quarterly Summary Statistics: Feb 2005, DWP, tables IB1.1, IB1.2 and SDA1.1. Unfortunately the Work and Pensions Longitudinal Study does not provide data for before 1999.

[17] Incapacity Benefit and Severe Disablement Allowance Quarterly Summary Statistics: Feb 2005, DWP, tables IB1.4 and SDA1.1.

[18] Incapacity Benefit and Severe Disablement Allowance Quarterly Summary Statistics: Feb 2005, DWP, tables IB1.4 and SDA1.1.

[19] Incapacity Benefit and Severe Disablement Allowance Quarterly Summary Statistics: Feb 2005, DWP, table IB1.9. Unfortunately the WPLS does not provide commencement data. DWP notes that 'figures prior to 2004 are subject to minor changes;' 'figures for 2004 include fewer late notifications than previous quarters and will be subject to greater change in future'; and 'figures for the latest quarter do not include any late notifications and are subject to major changes in future quarters. For illustration purposes, total commencements for February 2004 increased by 22% in the year following their initial release.'

[20] Income Support Quarterly Statistical Enquiry: February 2005, table IS2.7.

[21] Benefit expenditure tables, DWP, table 7, updated December 2005, accessed at http://www.dwp.gov.uk/asd/asd4/medium_term.asp on 27/02/2006 18:45.

[22] Calculated from table on Resource Accounts 2004-5, DWP, 2006, p 81, accessed at http://www.dwp.gov.uk/publications/dwp/2006/dwp_resource_account.pdf on 28/02/2006 17:46. 'Interdependencies' are overpayments due to knock-on effects between loss of DLA component entitlement and premiums on means-tested benefits. HB estimates include approximations, and are different from those published previously as National Statistics. CTB fraud has not been measured and is assumed to be equal to the rate of fraud in HB. The accounts say that 'the estimated rate of fraud and error on unreviewed benefits, for which we have no reliable review information, has been set at 2.7% and divided equally among fraud, customer error and official error.'

[23] Moving between sickness and work, Alan Hedges and Wendy Sykes, DWP Research Report No 151, 2001, p. 2.

[24] Ibid, p 37.

[25] A New Deal for Welfare: empowering people to work, consultation report , DWP, 2006, p 20.

[26] Green Paper, para 63.

[27] Green Paper, para.s 66 - 7.

[28] Green Paper, para 63.

[29] Green Paper, para 65.

[30] The Employment Rates of Disabled People, Richard Berthoud, ISER for DWP, Research Report 298, March 2006..

[31] Ibid, p 68.

[32] Mind submission to Work and Pensions Committee Inquiry into incapacity benefits and Pathways to Work, 2006, para 2.2.

[33] What the Doctor Ordered?, NACAB, 2006, pp 8 & 9.

[34] Quoted in 'Reforms Need Doctoring', John Wheatley, Guardian, 2 March 2006.

[35] Private correspondence, Ron Parr.

[36] Green Paper, p 7.

[37] A New Deal for Welfare: empowering people to work, consultation report , DWP, 2006, p 21.

[38] Currently the personal allowances for JSA are £57.45 a week for those over 25, £45.50 for those aged 18 - 24 and £34.60 for 16 and 17 year olds.

[39] A New Deal for Welfare: empowering people to work, consultation report , DWP, 2006, p 20.

[40] Op cit, para 79.

[41] Op cit, fig 2.4.

[42] Ibid, p 10.

[43] Ibid, p 77.

[44] 'Britain's Relative Productivity performance', Mahoney and de Boer, Economic Review, NIESR, March 2002.

[45] Qualitative Evaluation of Employment Zones: A Study of Local Delivery Agents and Area Case Studies¸ A Hirst et al, DWP, 2002, para 15.

[46] Evaluation of Single Provider Employment Zone: Extensions to Young People, Lone Parents and Early Entrants - Interim Report, Rita Griffiths and Gerwyn Jones, Research Report No 228, Insite Research and Consulting for DWP, 2005, p 27.

[47] Review of Action Teams for Jobs, Jo Casebourne, Sara Davis and Rosie Page, Research Report 328, IES for DWP, 2006, p 2.

[48] Ibid, p 4.

[49] 'Public and private sector roles in social services', speech by Michael Raper, President of the Australian Council of Social Service to the 2000 International Conference on Social Welfare, based on Common Cause? relationships and reforms in community services, ACOSS Paper 102, November 1999.

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