Putting the pieces together: the government's plans for the future of welfare reform

Speech by Lord David Freud.

This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government
The Rt Hon Lord Freud

Despite the enormous variation in this essay collection, in terms of both subject matter and viewpoint, there are some reoccurring themes.

Firstly, a move towards greater personal responsibility, and away from the notion that the state can and should provide services to the nth degree.

Secondly, whether in health, education or welfare there is a shift from an autocratic model of service delivery towards intensely personalised support focused around the individual patient, pupil or benefit claimant.

And finally, across all areas there is a more sophisticated appreciation of public service delivery. There is a growing understanding that social change cannot be achieved simply through ever increasing spending, we have to be smarter than that.

This collection brings together some of the most radical new ideas in public policy today.

Ideas that are transforming the future of Government and public service delivery in the UK.

There is no arena in which this transformation is so palpable and as fast moving as it is in the welfare reform space.

In just over 12 months we have completely redefined employment support and in doing so we have created a framework which can be used by other parts of Government to deliver social interventions in a much more holistic and comprehensive way.

Using the new DWP framework we have contracted the best of private, voluntary and public sector expertise to deliver tailored employment support based on individual need.

This support will be provided through the Work Programme which we launched just last month.

The Work Programme takes a radically new approach to supporting people at risk of long term unemployment into sustainable jobs.

This Programme is bigger than any of our previous employment programmes and it will serve an unprecedented range of people, some of whom will need more help finding and keeping a job than others.

Organisations delivering the Work Programme are therefore paid variable amounts which are dependent upon the perceived difficultly of getting an individual into work.

So, the more difficult it is to get someone into the work the more we will pay for that support.

Maximum payments for supporting people into sustained employment will range from around £4,000 for typical jobseekers to almost £14,000 for the hardest to help, reflecting the differing levels of support required.

This in itself is a unique approach for Government but what is really revolutionary is that we have not dictated the terms of this support.

The Work Programme is being delivered on an almost entirely payment by results basis.

We’ve developed is a contract structure that runs like this.

For the first three years there will be a small but declining up front payment made for each claimant referred to the Work Programme.

The next payment only comes after someone has been in work for six months if they are a typical jobseeker or three months if they are from one of the harder to help groups.

The rest of the fee is paid in instalments that last up to two years for the hardest to help. And if the person drops out of work those payments stop.

At the end of three years we will have moved to 100 per cent payment by results.

The payment by results model was very much created out of my own experience in the financial markets.

The UK has the most astonishing record of innovation in this area.

Firstly, with the wave of privatisation that swept first through the UK and then through the rest of the world in the 1980s.

Secondly, with the development of the basic framework for Public, Private Partnerships (PPPs) in the 1990s, which again we have exported to almost every corner of the world.

And now we are entering the third wave with a viable payment by results mechanism.

I believe payment by results will overtake PPPs as the preferred contracting option for public service delivery and once again we will see an idea that had its genesis here in the UK redefine public services at a global level.

The welfare industry has shown its confidence in the new system by indicating it is willing to invest up to £580 million in the first year.

This is a powerful indication that payment by results can deliver exciting, innovative programmes that simultaneously provide an effective service and are good value for the tax-payer.

Crucially, the framework we have established to deliver the Work Programme is deliberately flexible enough to bring in other forms of social intervention that support people in to work. 

We have built something that can go much further than tackling unemployment, and we are now looking at developing a sophisticated system of social interventions based around the payment by results model, with the Work Programme at its core.

Earlier this week the Prime Minister unveiled his plans for wider public service reform.

A key strand of this plan is the commitment to extend payment by results to increase accountability and transparency.

We are already looking at a number of options, including using this approach to provide services to tackle drug and alcohol addiction and the rehabilitation of ex-offenders.

Indeed, just a couple of weeks ago we issued an invitation to tender to the DWP framework providers to deliver a family-wide intervention programme to tackle worklessness.

There are a small but significant number of families - around 120,000 - who are truly struggling and contribute a disproportionate amount to Britain’s social problems.

These are troubled families, often with multiple problems, and often already being supported in different ways by a host of local services.

Simply providing back to work support to an individual family member is not going to transform the lives of the entire family.

Turning the lives of these families around and enabling them to fulfil their potential is a priority and would bring real social benefits.

Using the framework we will contract providers to work with whole families in partnership with local services to tackle some of the acute problems that prevent individual family members getting back to work. We are spending around £200 million of European Social Fund money to provide this employment-focused support.

The ultimate aim is to break the intergenerational cycle of worklessness and get families working.

But a similar non-prescriptive, payment by results model to the Work Programme will mean providers have the resources and the freedom to really work with families and bring about real life change.

This is just the beginning.

The framework isn’t just a mechanism for public sector intervention. It could also be the tool we use to turn social investment into social intervention.

We want to use the payment by results model to bring in private finance in the pursuit of social good.

We can harness social investment using something like Social Impact Bonds.

And encourage private investors to back projects with, for example, disadvantaged children by rewarding them with some of the future savings we will make to the public purse.

However, they’ll only see a return on this investment if their projects work -pure payment by results.

When you consider that it costs on average around £59,000 a year on for a young person to be kept in a young offender’s institute, or hundreds of thousands of pounds to support somebody for a lifetime on benefits, it is clear that the potential savings and therefore rewards are huge.

Not only does this make economic sense, it is also a question of social justice, getting investors to do something positive for their community while seeing a return on their investment at the same time.

A pilot programme at Peterborough Prison has attracted £5 million investment from the private and voluntary sector. This scheme is targeting 3,000 adult offenders with the aim of bringing about a 7.5 per cent reduction in re-offending within six years.

Sir Ronald Cohen has spoken eloquently about the possibilities here, arguing that: “Impact [social investment] capital is the new venture capital”.

It’s a bold claim.

There is still a great deal of work that needs to be done, particularly around how we value the impact of private investments and translate it into clear and measurable returns.

But we are heading in the right direction.

Previous Government schemes failed, in my view, because the flow of money for social interventions created the wrong kind of programmes.

Public investment has typically come from the centre.

Budgets have been divided up by department with each fiefdom carrying out its own activities and often the left hand having no clue what the right hand is doing.

And these schemes have been entirely blinkered in their aims, focused on single issues and narrow outcomes.

Payment by results takes away the blinkers, breaks down the silos and encourages tailored, localised support.

This is going to be the real revolution - social interventions that actually work.

Published 14 July 2011