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Welfare Reform

Welfare Reform

Thursday 7th June 2007

George Osborne MP

It's a great pleasure to be speaking here at this conference on welfare to work.

I'd like to thank Clifford Chance for sponsoring today's event.

And I'd like to thank all of you for coming here today.

I'm delighted that we have so many welfare experts and providers together.

We want to listen to you and work with you as we develop the detail of our welfare policy.

And of course, I'd like to thank David Freud for joining us.

I think his review has dramatically moved the debate forward, and I'm grateful to him for sharing his thoughts with us.

I'm here today because it's increasingly clear that the next Conservative government will inherit a series of difficult welfare challenges that directly impact on the health of our economy and the strength of our society.

I'm sure you're all aware of the statistics.

2.7 million people are on incapacity benefit - with over two million claiming for over twelve months.

10 years ago we were promised that the Government would "get 250,000 young unemployed off benefit and into work".

But there has been a 40% increase in the number of 16-18 year olds not in employment, education or training.

And unemployment amongst young people is higher today than it was a decade ago.

We are in danger of creating a British underclass.

And behind the bald statistics are countless stories of talents wasted, aspirations blunted and opportunities squandered.

This isn't what the government promised to deliver.

In his first budget, the Chancellor proclaimed that: "In place of welfare there should be work."

I agree with that ambition, but I am disappointed that the means of achieving it have been so limited.

Take the New Deal for young people - it has cost £2 billion to date.

But as the National Audit Office concluded in a damning report, almost all of the young people that the Chancellor claims the scheme helped would have found jobs anyway.

What's more, a recent study revealed that the New Deal has not been as successful as Ministers claim in helping young people find long-term work.

Over 300,000 young people have already entered the New Deal scheme for a second occasion, 90,000 have entered it for the third time, and 25,000 have entered it for a fourth time or more. This level of churn is completely unacceptable.

It's clear that the New Deal isn't working.

And I thought it was refreshing that John Hutton admitted as much when he said recently that: "Ten years in to the New Deal we need to do it differently...we are not tailoring or individualising enough".

I agree, even if the Chancellor doesn't. He is still claiming that the New Deal has "worked very well".

I fear that his Government will not be interested in taking forward serious welfare reform

So as with the public services, I believe the challenge of welfare reform will increasingly fall to the next Government.

I think we should start by having the confidence to look around and to learn from the examples of successful welfare reform both overseas and at home.

Take Australia, for example. There, as many of you know, a welfare programme called Job Network was launched in 1998.

Under this scheme, public sector job centres refer claimants to independent providers, who are paid for meeting set goals, like getting a benefit claimant back into work for six months or more.

And benefit claimants are given individual Job Seeker Accounts that the independent providers can use to pay for things like training, or smart clothes for interviews. The more challenging the needs of the individual, the more funding they receive.

The results are clear.

Last year, half of the 300,000 people who took part in the programme were helped into work for three months or longer.

Like Australia, the Netherlands too has made use of the independent sector in improving its welfare to work strategy.

There, jobseekers are classified into four categories, based on their needs and the perceived difficulty of helping them into work. The public sector deals with those that are considered to be easiest to help, and independent providers are contracted to help the rest.

And the Dutch go further than the Australians, by giving providers incentives to engage with jobseekers from day one.

Half of the payment is used to design and implement an individually tailored plan. The rest is contingent on whether that plan has resulted in the claimant getting work, and staying in work. The result is that providers offer personalised assistance over the long-term.

Here in Britain, Kent's Conservative Council's Supporting Independence Programme works with independent providers to offer personalised support for benefit claimants.

Analysis by Oxford University has shown that claimants who took part in the scheme had a 30% higher chance of leaving the benefits system than the average claimant living elsewhere in the South East.

These examples show what can be done. They point to the direction I believe we need to go in the future.

So let me set out the Conservative approach to welfare reform.

First, we should be getting on with implementing the Freud Report.

As you know, David, we think that your report is a major step in the right direction.

It reflects what we in the Conservative Party have been saying for many years now.

You came to many of the same conclusions I did when I was helping to draw up our Party's Work First programme before the last election.

Your report provides a powerful case that private and voluntary sectors are much better at helping people into work than government bureaucracies.

And you rightly emphasise the importance of outcome based incentives.

Evidence from abroad, and from pilots here in Britain show that independent providers with the right incentives have developed effective and innovative ways of getting people off benefits - and they've achieved great results.

A recent report by the think tank Reform found that the Job Centre Plus only managed to get one in three New Deal applicants into work for more than 13 weeks.

By contrast, Tomorrow's People, an independent provider, succeeded at getting nine out of ten applicants into work for more than 13 weeks.

I have seen for myself their centre in South London and was enormously impressed by the wonderful job they do - I am absolutely delighted that Debbie Scott, the Chief Executive of Tomorrow's People, agreed to be the Deputy Chair of our Social Justice Policy Group.

So the lesson from Britain and around the world is that we should be ready to use as diverse a range of providers as possible to supply the innovation and dynamism that we need.

We will use any sector, any organisation - public, charitable, and independent - that can help. And I look forward to working with many of you here in future.

The question is: is the current Government interested in moving on from the limitations of the New Deal?

When the Freud Report was unveiled earlier this year, Gordon Brown said, "This starts a new phase of welfare reform which I will champion."

But then he went quiet on Budget day, when the Chancellor failed to mention the Freud report at all.

Then two months ago, a letter was leaked from the Chief Secretary to the Treasury to John Hutton which seemed to reveal the Chancellor's real view.

His leaked letter claimed that "As the chancellor made clear, it is not possible to develop or pilot a new funding model in the immediate future".

Instead of dragging his heels, Gordon Brown should be launching the programmes now. We need to iron out the details so that we can roll out the ideas behind the Freud Report across the country.

Tony Blair commissioned the Freud Report; John Hutton welcomed it; Gordon Brown should stop being the roadblock to reform.

It is the basis upon which we can build a cross-party consensus that would enable you to plan and invest for the long term. That's got to be good for you and good for the country.

If the first principle is that we should implement the ideas behind the Freud Report, the second is that we must go further.

We should seriously consider a bold "no-win, no-fee" approach to getting people off benefits.

Prime contractors, be they companies or charities, would be paid primarily if they get people back into work, and keep them there - in other words payment by results.

This would mean that large sums taxpayers' money would not be paid out unless benefit claimants are successfully moved into work.

With these incentives we would unleash the dynamism and energy of the independent sector, who could deliver tough but tailored work programmes for people on the benefit rolls.

Judging by other countries, this could include:

• Providing occupational therapy to help disabled people get into the workplace.

• Offering interview training and other soft skills

• Delivering drug rehabilitation programmes

• Giving literacy and numeracy coaching

We want to work with you on the details of how to design the system.

But let us be clear: We will not hold back.

We will go beyond the current limited thinking that tends to offers flat rate fees to independent providers, that could encourage "cherry picking" of the easiest cases.

Instead, we will investigate different fees for different cases.

That will allow us to pay more to take on the hardest to help: those for example with drug addiction, severe skills gaps and criminal records.

What's more, we should look at staging payments to reflect saving to the Treasury - so higher fees for the tough cases will be paid over a longer period, encouraging providers to deliver in-work support.

By encouraging providers to work with claimants, payment by results gives a powerful incentive to help people find work and stay in work.

And if we get the incentive system right, then providers will be encouraged to act quickly.

After all, we know that the longer someone is out of work, the more likely they will stay out of work.

Once a person is on incapacity benefits for a year, for example, they are likely to remain on benefits for an average of eight years.

The third part of a Conservative approach is simple. Let us be clear that we expect more from those on employment related benefits in return.

Our guiding principle must be "Work First".

To those who can work, we expect you to look for work, take a reasonable job when it's offered to you and do your best to stick with it.

As David points out in his Review, this principle has a long history.

Back in 1942, the Beveridge Report recognised that "men who have once gained the habit of work would rather work than be idle." Beveridge went on to recommend that the long-term unemployed "should be required… to attend a work or training centre".

What's urgently needed today is a 21st Century application of Beveridge's philosophy.

This means thinking whether, alongside all the extra support I have outlined today, we also need tougher sanctions against those who can work but refuse to take steps to get back into the labour market.

We need to break the cycle of dependency that is blighting so many lives.

And we must be honest about the challenges facing lone parents - I want to work with all you to find the right mix of conditionality and support through childcare and more flexible working.

But the benefits of getting this right are clear.

It has been estimated that the gross savings to the department of moving a single incapacity benefit recipient into work for a year is up to £5,900.

For lone parents on income support, the savings can add up to more than £4,000.

Together these bold reforms can transform the welfare system.

If we had the same success as in Australia we could, for example, reduce incapacity levels by 1.4 million.

Let me be clear what that means. It would mean halving the number of people claiming incapacity benefit.

This would result in a massive improvement in the quality of life for hundreds of thousands of people.

It would create a stream of British people coming forward to fill available jobs.

And the potential savings to the taxpayer would be enormous - over £8 billion pounds a year.

We cannot do this without you. Let us together meet these great challenges.

The economic challenge, that in an age of globalisation we can no longer afford to ignore five million British people of working age who are sitting on the sidelines.

The fiscal challenge that in an age when there are ever greater demands on public expenditure we must seize the opportunity to work with the private sector and save the taxpayer billions in out of work benefits.

And the social challenge: in an age when too many communities are broken, we have a social responsibility no longer to tolerate the exclusion of so many of our citizens from the mainstream of our society.

Three challenges - a unique opportunity for policy makers and for your industry to work together for a win-win-win for Britain.

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