The challenge of progression
Since coming to power, the Coalition government has embarked on a radical programme of welfare reform. Its flagship Work Programme scheme is now in place and providing support to the long-term unemployed and disadvantaged to help them to enter and stay in work. In a few weeks, Universal Credit, the benefit that will replace a series of income-replacement benefits and tax credits, will begin its staged roll out. These are positive steps and the extent to which they represent a step change in our approach to welfare policy should not be underestimated.
In particular, helping claimants of in-work benefits to sustain their jobs for longer and increase their earnings (to “progress”) are now key goals of government welfare policy. This approach will significantly increase the number of people able to take on support and also subject to more intensive conditions in return for benefit. In particular, once rolled out, current claimants of tax credits who are working relatively few hours are likely to be subject to increased requirements. If successful in increasing earnings, this approach would increase living standards of families and reduce the benefit bill. However, there are significant challenges to achieving this goal.
Existing evidence tells us that staying in work and increasing earnings can be extremely difficult for individuals with relatively low levels of qualifications and for employees in low-income jobs. At the most basic level, the median length of continuous employment for those employed in the bottom decile of the earnings distribution is just over two years. For those in the top decile the equivalent figure is around eight years. Some 14% of employees in the bottom decile of the earnings distribution are in temporary employment. Only 2% of those in the top decile of the earnings distribution are in this position.
The recession clearly has an impact on the ability of some employees to increase their earnings. One respondent to our call for evidence summarised:
However, a lack of progression is not just a result of the recession. Even during past periods of relatively strong growth we could see that the labour market in the UK was changing: jobs have become more flexible and potentially more insecure; the “job for life” is no-longer a standard form of employment; and due to technological changes, many of the jobs which were relied upon for employees to progress over their working lives no longer exist. Reports over the last decade have continually highlighted that a low-pay, no-pay cycle exists in the UK and that policy interventions are not helping to tackle it.
In particular, while around 70% of JSA claimants move off benefit within six months of initiating a JSA claim, success in terms of finding claimants sustainable work is far less convincing. As documented in our earlier report, Welfare 2.0:
- Only 68% of those leaving JSA actually enter employment;
- Around a third (30%) of those leaving JSA are claiming benefits again within eight months; and
- Of those who started work nearly one in ten (8%) were employed for fewer than 16 hours a week.
Combined with a lack of evidence around policy interventions that are effective in helping people to increase their earnings, these challenges mean that the government is faced with a difficult task in designing an effective and efficient system of support and requirements. This lack of evidence makes it essential that the government is fully committed to piloting and fully evaluating potential policy interventions to help people to increase their earnings. For this reason it is encouraging that the government has issued a call for ideas in this area and looks set to implement a number of pilots.
A breakdown of in-work claimants
This commitment to piloting is even more important because our analysis suggests that a large variety of individuals and families may come under a new programme of support and requirements for in-work benefits claimants.
Overall, analysis in this report suggests that around 1.3 million people will be subject to some form of in-work requirements and support. Of these, Chapter 1 demonstrates that:
- Around two thirds of the group do not have dependent children. However, alongside these families without dependent children, there are also a significant minority of the group who are lone-parents with dependent children aged between 5 and 17;
- Almost two thirds of the group are female;
- The group has a broad mixture of individuals of different ages. However, just over half are over 45 years old;
- Nearly 45% of the group has relatively low qualifications or no formal qualifications at all;
- Many of the group are currently in stable employment, with over half having been with their current employer for over two years. However, working hours are relatively low for the majority of the group (typically between 15 and 24 hours a week); and
- A large majority of the group are not currently looking for additional employment.
Evidence on the diversity of this group also echoes the concerns of a number of respondents to our call for evidence. In particular, because of caring responsibilities, ill health or a disability some families and individuals might have limited scope for increasing their earnings. As we outlined in Personalised Welfare, it is essential to approach these issues in a way that does not simply consider benefit type and length of claim, but instead to effectively target personalised support.
Combined with existing evidence of the chances of progression and the impact of policy, this leaves the government facing significant challenges:
- A large proportion of individuals in low-paid or low-hours work do not regard progression as a priority.
- Current policy interventions (e.g. JCP) can be counter-productive to the goal of progression.
- Temporary jobs, part-time work, and mini-jobs do not, on average, appear to help individuals progress.
- Training does not, on average, appear to lead to progression, though implementation and differential impact across groups may cloud results.
- Financial incentives for employment retention may work for some groups.
- Employment retention appears to be encouraged by job-seeking while in work.
Based on the limited existing evidence and our own analysis, this report outlines areas where we believe that the government should focus its pilots. However, we are also clear that these pilots alone will not be enough. It is essential that freedom is given to Jobcentres and power devolved through the City Deals process in order to leverage a far greater range of piloting and policy innovation. By doing so, we will begin to get a better picture of policy interventions that are effective in supporting and encouraging in-work claimants to increase their earnings.
We also outline reforms that are essential to roll out now, before piloting begins. These include fundamental changes in the way in which Jobcentre performance is measured and in how Work Programme providers are rewarded for helping the claimants placed with them. Alongside these measures it will also be essential to put in place a baseline conditionality regime right from day one of Universal Credit being rolled out. Without this, the moment of change will be missed and an important opportunity to influence the attitudes and behaviour of benefit claimants lost.
Together our proposals outline the basis for a strong system of support and conditionality for in-work claimants. Once pilots have been evaluated and lessons learned, this system can be built up in order to put in place a comprehensive programme of personalised and targeted support and requirements for claimants in order to improve earnings, boost living standards and help more families move towards independence.