THINK TANK - The Ideas Zone....!!!, Welfare to Work

Unit costs and the Work programme

Has the sector missed the point about outcome payments?

The sector has been preoccupied and obsessing about unit costs of circa £1,500. One can fully understand this because as we know, the unit costs for FND1 & FND2 were very testing and the costings for PEP were totally unrealistic.

The first principle in any business is to understand and to know your costs: if the costs do not add up then you negotiate or walk away…..!!!

Lord Freud stated,

“the costs of helping individuals move into work need to be understood. Once the proposed regime is fully developed, both the State and the provider would then have a fuller knowledge of the expected cost of the support needed for an individual claimant”

Question 1, is “the proposed regime fully developed?”
Answer No it isn’t.

However, regardless of whether it has been fully developed or not the fact remains that the sector has not adequately, consistently and with a united voice clarified and advised on the ‘true’ cost of delivery; the position has been reactionary rather than proactive.

Every now and then however; it is useful to revert to source material and revisit initial thinking.

At the time of writing Reducing dependency, increasing opportunity: options for the future of welfare to work 2007 David Freud outlined that the fiscal gain of moving an average recipient off benefit and into work for a year resulted in a substantial gross saving to the exchequer. The initial cumulative costs would be in the region of;

  • £9,000 for Incapacity benefit claimants,
  • £8,100 Jobseeker’s Allowance,
  • £4,400 lone parents,

Freud acknowledged however that the real costs would in fact be a multiple of these figures.

So for Incapacity Benefit payments once a person has been on IB for a year, they are on average on benefit for eight years. Freud writes that a genuine transformation into long term work for an IB claimant is worth a net value of around £62,000, per person to the State.

Ok Floyd…. What are you saying…?

My first point is this…..

  • Whilst we do not know how long a former IB –ESA, JSA, or LP claimant stays in work, the cumulative figure is as reasonable a starting point from which to begin discussions as is the compound risk of a purely outcomes focused contract with no guaranteed flows.

My second point is this

  • The Document; The Work Programme Framework “…the price paid for job outcomes should not exceed the benefit savings that have been generated”.makes a very important observation…… See IB, JSA  savings for 1 year divide by 12 x by 13 or 26 weeks =£x,xxx : thats more like it!! ( I know its crude but could it work?

My Third point is this

  • The department should proportionately apply the cumulative net savings over a given period this will provide considerable room for DWP to be more malleable around unit costs so for example, in the first 2 quarters of contract DWP could ‘front-end load’ payments… Remember what Lord Freud said at the Alps Conference about getting the pricing RIGHT and UP –see our report).

o    The ‘front-end loading’ would have additional trigger and drawdown points.

  • This approach would provide the scope for the department to be more expansive regarding sustainability,

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