Welfare to work devolution in England

Key points

• Devolution of the Work Programme and other employment and skills services needs tailoring to the capacity of local governance. Partnerships need to be able to negotiate different levels of responsibility and to test, evaluate and develop new approaches to local design and delivery before moving to fuller devolution. This approach should be an explicit aim of City Deals and Growth Deals (which negotiate with government for new local powers and economic responsibility), rather than a tacit local objective.
• More devolution of the working relationship between Jobcentres and local government is needed, as well as more coherent partnership agreements to help facilitate integrated and locally accountable service delivery.
• Central accountability and greater local control could be aligned through negotiated agreements, performance reporting systems, and the incentives and sanctions embedded in conditional central funding such as performance-based contracts.

• In other countries, welfare-to-work devolution has acted as the catalyst for local integration in delivering employment, training and other WtoW services and improving performance.
• Devolved budgetary systems need to balance performance-related incentives and sanctions with continued investment in support for service users, especially in areas with weak labour markets or which experience ‘economic shocks’.
• Performance requirements could help in shaping devolution in ways more likely to contribute to reducing poverty. Future WtoW provision needs to reward job entry, retention and progression rather than simple caseload reduction.
  
• Variation in service delivery could be accommodated, but welfare-to-work devolution needs underpinning by transparent national minimum standards, especially where participation is mandatory for benefit claimants.

BACKGROUND

In the UK, despite some variation in Northern Ireland, Scotland and Wales, government ministers and Whitehall control the main operation of welfare-to- work (WtoW) policy. In contrast to most other developed economies, local government plays only a limited role in Britain. There has been much criticism of these institutional arrangements, the fragmentation of public sector delivery, and the lack of flexibility and devolution in the WtoW system.

However, there appears to be scepticism about local providers’ capacity to design employment services and commission them in ways that avoid high transaction costs and improve employment outcomes. The Department for Work and Pensions (DWP) is particularly concerned that divergent local interests and/or capabilities should not undermine national ‘work first’ policies. This concern has constrained local integration and partnership working.

This study examined a range of evidence on devolution of WtoW policies in the UK and in comparator countries: Canada, the USA, the Netherlands and Germany.

Potential opportunities for devolution

The case for greater devolution has increased because of the scale and complexity of tackling worklessness, and public expenditure cuts. Whitehall civil servants have encouraged administrative flexibility where this helps to achieve departmental objectives, but they have appeared reluctant to vary much of their control. Such flexibility has largely concerned provision for groups not covered or well served by mainstream WtoW services. More extensive flexibility has been extended only to prime providers delivering centrally commissioned programmes. These providers are only weakly connected to local government and Local Enterprise Partnerships.

Local government involvement in WtoW policy would give greater legitimacy to often controversial national programmes and greater insight into how to tailor services to local communities’ needs and views. Further devolution would have other advantages, such as facilitating ‘pooling’ of fragmented budgets, and data sharing. Aligning DWP programme contracts with ‘functional economic areas’ would also facilitate connections with local growth strategies. It could open up the delivery of employment services to a more diverse group of providers.

Little attention has been given to devolution of the Jobcentre network. The role of Jobcentres is changing, but there are variations in how DWP districts and individual Jobcentres engage with partnerships, councils and contracted providers. The development of local support services related to Universal Credit requires greater partnership working. Local authorities are seeking better integration of employment and benefits services. Greater devolution of how Jobcentres work with local government is required. More coherent partnership agreements would facilitate integrated and locally accountable service delivery.

What the evidence shows

An inter-relationship between devolution of employment services and more coherent service delivery is not automatic. Evidence for the impact of locally designed welfare-to-work programmes in the UK is limited. Many submissions from local government stakeholders, for example, typically assert the value of joint working and/or point to high self-reported rates of job entry from voluntary small-scale employment or skills programmes. They contrast these with headline results from mandatory large-scale DWP programmes.

The evidence from the four case-study countries is stronger. In each country, evaluations of devolved WtoW arrangements show that devolution has contributed to reducing caseloads and increasing employment, although views differ on the quality of the outcomes secured.

It is difficult to disentangle the impacts of institutional and service delivery reforms from those of the WtoW policies that have been implemented. Some evidence exists on the particular impact of devolution. Positive evaluations suggest that giving lower tiers of government or partnerships responsibility for funding services, financing benefit payments and implementing programmes has encouraged innovation. It has also enabled local providers to design and implement more co-ordinated services tailored to the needs of local communities and employers.

Devolved responsibility for financing benefit payments has also given lower tiers of government stronger incentives to keep unemployment low. By contributing some of their own resources, they assume greater financial risk for service delivery, but are often awarded a share of the central benefit expenditure saved. Sharing benefit savings locally might help to improve the legitimacy of performance-based contracts because, in contrast to existing DWP provision, a more significant proportion of any ‘profits’ could be reinvested in local services. However, this approach requires careful design to ensure that local providers do not simply turn applicants away or focus mainly on new benefit claimants, as happened in the US and initially in the Netherlands.

A staged approach

Any design for devolution needs to consider local authorities’ personnel, organisational and fiscal capabilities. At least initially, central government should facilitate capacity-building, evaluation and transfer of best practice. Devolution proposals for England recognise that local capacity varies. Proponents typically suggest a staged approach to reform, offering local providers different levels of devolution according to their capacity to deliver and assume risk. This differentiated and experimental approach could be an explicit national policy for City Deals and Growth Deals (new local powers negotiated with government, giving greater responsibility to stimulate and support local economic growth), rather than a tacit local objective. This would help to establish a clearer pathway for further devolution of WtoW policies in England.

Many larger local authorities have commissioned and managed employment services. They also claim to have the capacity to better connect WtoW services with skills, health and other wraparound services often critical for addressing the underlying issues that disadvantaged claimants face.

It would not be feasible, however, for all local areas to immediately acquire the DWP’s expertise in designing payment, procurement and performance management systems. Canada’s differential approach to ‘labour market agreements’ and the use of state-based ‘waivers’ in the US have allowed provincial and state governments to negotiate and test different levels of responsibility before moving to fuller devolution.

The need for a national framework

Accountability is a key issue. A national framework is required to ensure common or minimum service standards, especially where participation is mandatory for benefit claimants. Some regulatory oversight is also needed to ensure that local services promote job entry, retention and progression rather than simple caseload reduction. National funding systems and performance requirements can also help shape delivery in ways more likely to contribute to reducing poverty, by focusing on the quality as well as the duration of employment gained, as in the earnings and hours measures tracked in the US workforce development system.

Another way of achieving accountability is for central government to aid evaluation and encourage transparency and the spread of evidence-based best practice. Examples of this are the evaluations required of provinces in Canada at various stages and state-based waivers in the US.

The design of methods to allocate budgets to local areas needs to address concerns about equity. Allocations need to be commensurate with levels of unemployment and poverty. The lessons from WtoW devolution in the comparator countries – and from UK experience – highlight the importance of budgetary systems that balance performance-related incentives and sanctions with the need to maintain investment in and support for service users, especially where labour markets are weak. Funding formulas need to protect against abrupt changes in local allocations, work against any ‘race to the bottom’ and provide for the impact of ‘economic shocks’.

Conclusion

Greater local control would enable local government and/or employer-led partnerships to improve the effectiveness of welfare-to-work policy, increase value for money and better adapt mainstream WtoW policies – especially the Work Programme – to local conditions.

Further devolution could assist in effective local growth strategies, with a pivotal contribution by integrated employment and skills provision ensuring that less well-off residents benefit from the increased employment and wealth associated with economic growth.

Devolution of WtoW is not a panacea for inadequate resources, but it could improve the coordination, effectiveness and coverage of local service delivery systems. The risks are, however, that devolution, if poorly designed, could undermine the standard and effectiveness of national services while reducing transparency and central accountability.

A further challenge concerns the risks of a ‘postcode lottery’. There is a potential conflict between the norm of equal treatment and devolving employment services and benefit entitlements. The key issue in WtoW service delivery, both public and private, is how far variety can be accommodated while ensuring acceptable common standards for eligible participants.

About the project

This study conducted a targeted review of official reports and evaluations, independent studies and peer-reviewed research on welfare-to-work devolution, and carried out interviews with key stakeholders, including representatives from DWP, local government and welfare-to-work providers. The research also reviewed devolution of WtoW policies in four comparator countries.