We Can Work It out Local Employment and Skills for Economic Recovery Nick Hope and Anna Turley

We Can Work It Out Local employment and skills for economic recovery Nick Hope and Anna Turley

www.nlgn.org.uk New Local Government Network (NLGN) is an independent think tank that seeks to transform public services, revitalise local political leadership and empower local communities. NLGN is publishing this report as part of its programme of research and innovative policy projects, which we hope will be of use to policy makers and practitioners. The views expressed are however those of the authors and not necessarily those of NLGN.

Prepared by NLGN First floor, New City Court, 20 St. Thomas Street, London SE1 9RS Tel 020 7357 0051 . Email [email protected] . www.nlgn.org.uk We Can Work It Out Contents 3

Contents

Acknowledgements 4

Foreword 5 Paul Carter, Leader, Kent County Council

Executive summary 7

1 A new and challenging economic context 15

2 The employment and skills system(s)? 36

3 Integrating employment and skills governance 50

4 Building the ecosystem around the individual 68

5 A Total Place approach to invest-to-save 89

6 New local economic and skills activism 97

Conclusion 119

Appendix 1 Invest to Save methodology 124 Appendix 2 Acronyms 125

Partners 126

4 We Can Work It Out Acknowledgements

Acknowledgements

The authors would like to extend their thanks to A4e and Kent County Council for their support and intellectual input, without which this report would not have been possible. We are also very grateful to all the people that submitted case studies, took part in interviews and attended research seminars in Manchester and London.

We would like to thank Stephen Houghton, Leader of Barnsley Metropolitan Borough Council, Amanda McIntyre, Director of Employment Related Services Association, Debbie Scott, Chief Executive of Tomorrow’s People, Sue Dunn, Joint Head of 14 - 24 Innovation Unit of Kent County Council and Caroline Bostock, Local Government Business Development Director of A4e. Their insightful advice, challenge and support has been invaluable. Thanks must also go to Vivek Bhardwaj, Amy Williams and the rest of the NLGN team. Finally, we would like to give special thanks to Julie Redline and James McHugh for all their help with the research.

Of course, the views in this report are those of the authors and any errors and omissions are ours alone.

Nick Hope and Anna Turley January 2010 We Can Work It Out Foreword 5

Foreword

As Leader of Kent County Council I am delighted to introduce ‘We can work it out: Local employment and skills for economic recovery’ an NLGN research report jointly sponsored by Kent County Council (KCC) and A4e.

The report is a timely intervention into the national debate about how we can best meet the challenge of ensuring our young people and the general workforce have the skills necessary to compete in a global 21st century economy, where new economic superpowers such as a China, India and Brazil are coming to the fore. The evidence is increasingly clear that as a nation, too many of our young people and the general workforce are lagging behind in terms of skills compared to our major competitors.

The risk to our economy of not getting the skills agenda right is simply far too great to ignore.

At the same time, we must ensure that those who have fallen into benefit dependency are incentivised to work and are given the information, advice and guidance to access skills training so that they can successfully enter the employment market and reduce the out-of-work benefit bill that, when public money is increasing limited, is no longer sustainable.

At the heart of the issue lies a structural problem with how training is currently delivered. Welfare to work services often fail to adequately meet individual skills needs and are difficult to access, whilst the skills sector generally is too fragmented, with various agencies having overlapping responsibility for young people, adult skills, young offenders, apprenticeships, careers advice etc. This lack of co-ordination and top down delivery by a multitude of unaccountable national agencies and quangos means that too little attention is paid to delivering for individual and community needs, and instead too much emphasis on national strategies and targets.

The main thrust of this paper, that a more integrated approach to worklessness and skills at a sub-regional level will deliver services focussed on local economic need, deliver a more personalised approach around the individual and offer up savings is one that the no political party can ignore. 6 We Can Work It Out

It is an approach that I wholeheartedly support. The only bodies at the local level that have the ability to understand the complicated and diverse needs of local economies are local authorities, who acting as a strategic commissioner can co-ordinate provision to ensure local needs are met and reduce the excessive costs of too many agencies providing similar services – often badly.

Kent County Council firmly believes that we have the track record to be able to deliver the skills and welfare reform agenda at a local level. We are not alone, as many of the case studies in this paper set out, the broader family of local government, acting collectively in partnership across economic sub- regions, has the capacity and capability to deliver this national agenda.

The centralised, fragmented approach to welfare reform and skills has failed for too long. Reform has been well intentioned but piecemeal. It is time for a more radical solution.

Paul Carter Leader, Kent County Council We Can Work It Out 7

Executive Summary

The recession has hit hard. Despite good progress in recent years that had seen the UK reach record employment levels by the summer of 2008, the labour market was not sufficiently resilient to withstand the economic earthquake that struck. Unemployment with all its far- reaching, life-shattering consequences has reared its ugly head again.

We cannot afford to repeat the mistakes of the past. Previous recessions have left us with legacies of wasted lives, cultures of dependency, low aspiration and intergenerational poverty. The devastating consequences of unemployment are proven beyond conjecture. It can destroy communities and has a drastic impact on the health, wealth, happiness and long-term futures of individuals and families.

As with previous recessions, this economic downturn is playing out in different ways in different places. Certain areas are being hit harder than others and within those communities particular groups, such as young people and the long-term unemployed, are facing particular challenges.

We must ensure that we secure our economic recovery and long-term health and prosperity as a nation by improving the educational opportunities that people have open to them and by better supporting people into work. More than that, we must build local economies that are more resilient, with work forces that can survive future economic challenges and flux.

This report makes the case for streamlined and integrated employment and skills governance, with local authorities, working closely with delivery partners and employers, driving the agenda forward in a more strategic way. To tackle the particular challenging issue of worklessness we call for a far more locally driven and personalised approach that is responsive, democratically accountable and proactive. Investment should be made in earlier intervention, keeping people in jobs, getting them back into work when they can, and preventing them falling into benefit dependency, with all its consequent human and financial costs.

The first chapter of this report provides an overview of the unemployment situation we faced before the recession and the new economic context the 8 We Can Work It Out

nation finds itself in. We highlight the different, indeed unique, challenges that each locality faces and how certain groups have been particularly hard hit, such as young people and the long-term unemployed. These highly localised problems need local solutions. The scale of the challenge many communities face is immense and radical action is needed because there are profound social and economic costs of unemployment that we cannot afford to pay.

Chapter two considers the actions that the Government is taking to try and tackle unemployment and skills shortages. We take a critical look at the main planks of forthcoming reforms and also consider the key Conservative Party proposals. We welcome some of the reforms that are being made, but highlight how the complexity and dislocation within the system make it unfit for purpose. This chapter provides detailed scrutiny and analysis to draw out some of the primary criticisms of the planned employment and skills system.

The system has been criticised for being over complicated, but new reforms threaten to make the landscape even more complex and risk creating further unwieldy relationships between a plethora of agencies. At the same time, local authorities will have greater accountability and will be under new statutory duties to ensure participation up to the age of 19. Yet other bodies will maintain some of the powers and tools needed to deliver this extension to the education leaving age.

There is also the potential for sharp and disruptive cut-offs in provision and services with artificial age-lines for young people as they make the transition from 14 to 19 programmes to adult (19 plus) programmes. These do not support moves towards a more personalised and tailored approach built around the barriers to the employment and skills needs of the individual. Moreover, though the Flexible New Deal (FND) has helped to consolidate a number of existing welfare to work programmes, there are concerns that the system remains too fragmented and the commissioning process too centralised.

The third chapter sets out our proposals on how these problems can be overcome and recommends a new, streamlined and better integrated model of governance for the employment and skills system. We consider how to define the right spatial level at which to take strategic decisions and consider how skills can be integrated at the sub-regional tier with employment and other policy strands. This will require the devolution of power from skills We Can Work It Out 9

quangos and central government and for local authorities to work together far more collaboratively. We recommend that:

•• The Government streamlines national and regional skills bodies, consolidating any necessary strategic functions of the main skills agencies into the UK Commission for Employment and Skills – and devolving all operational functions to local authorities so that there is a more unified and more locally responsive skills system, that is less bureaucratic and brings an end to accountability without power.

•• With the extension of the education leaving age to 18, local authorities should be given commensurate commissioning powers and block grant funding for 16-19 skills provision so that this can be achieved.

Current national commissioning processes for FND often give little democratic influence to local authorities. They can be insufficiently responsive to local circumstances and not properly integrated with wider social and economic strategic goals or with other welfare to work activity. Central government has a role in ensuring equity of entitlement and minimum standards of provision, but there needs to be much greater local leadership if there is to be a more effective approach to welfare to work. Defining the right spatial level is crucial and there is compelling evidence that functional economic footprints tend to be sub-regional in nature. This is challenging for local authorities, many of whom will have to work together collaboratively across their administrative boundaries. We recommend that:

•• The Government implements a single and integrated programme for welfare-to-work, ideally with commissioning being led by partnerships of local authorities operating sub-regionally. We recognise that steps towards full devolution may be required, such as co-commissioning arrangements, but recommend that this is regarded by both central and local government as a transition phase rather than end goal.

•• Councils should have a right to appeal against departmental decisions when local requests for devolution within the employment and skills system are ignored. A third party and impartial adjudicator, such as the most appropriate parliamentary select committee, should be enrolled in such cases to bypass institutional and cultural loyalties and arrive at a fair and balanced decision. 10 We Can Work It Out

We also make the case for adults to be empowered to have far more control over their learning and at the same time to enable local authorities to have a degree of democratic ‘steer’ relevant to the economic development of the area. Local authorities should be empowered to join up skills and economic policy in order to drive growth and shape their local economy. We must stimulate particular sectors at the right spatial level and based on wider strategic goals, to enable our local areas to capitalise on new economic opportunities and shape local workforces to take advantage of them.

•• We suggest that reshaped ‘skills accounts’ could provide a mechanism to combine greater individual choice with a greater degree of local democratic strategic control - empowering people and places to prosper. With such a system we believe it is possible for individuals to be ‘nudged’ towards particular training options of high economic priority through thoughtful choice architecture and financial incentives, such as variable levels of public subsidy from course to course. Employers could be encouraged to contribute to the skills accounts of their employees and also be given financial incentives to do so, such as through match-funding.

We also consider how the training and funding options available to adults for up-skilling can be expanded. We recommend that:

•• The Government should undertake a feasibility study at the earliest possible convenience into “Lifelong Learner Loans”, which would enable adults to unlock new training opportunities. The Government should consider adopting a model for funding adult vocational skills similar to Student Loans, in which loans are provided and repaid through automatic deduction from the individual’s salary once it reaches a certain threshold by the Student Loans Company.

Skills provision is just one facet of the role of the local public sector in getting people into jobs and shaping the employment potential of a local place. The barriers people face in getting into work are often multiple and complex and currently the public sector is not tackling these barriers in a sufficiently personalised and effective way.

In chapter four we argue that a place-based approach is required to ensure the multitude of agencies and actors work in a coordinated way for the We Can Work It Out 11

individual - offering ‘wraparound’ support and services to overcome the barriers to employment that people face.

This becomes even more crucial in light of the recession, not just to deal with the different demands of new non-traditional entrants to the unemployment system, but because the cost of benefit dependency for those furthest from the labour market is unsustainable both economically and socially.

Moreover, with tightening public spending it will be vital to prevent duplication and to align funding streams in a Total Place approach that maps local spending and provision and better harnesses the numerous public, private and third sector delivery agents.

We highlight why agencies need to join-up far more from the perspective of the individual. We look at the different needs that people have and the interrelated and inter-dependent nature of many of the problems that work against entering the labour market. Our analysis maps the multiple- dimensions that contribute to unemployment and worklessness and the many agencies that come into contact with individuals. We call for a far more personalised approach and far more intensive support for those individuals most excluded from employment opportunities. Better collaboration, pooled and aligned budgeting and more holistic advice and support are required to help people navigate the system and overcome their many and complex barriers to unemployment. We recommend that:

•• ‘Personal advisers’ who develop ‘back-to-work’ plans with individual claimants should be given a far broader remit. These advisers, or teams of advisers should have access to individually-allocated budgets to commission health, childcare, mental health support and other services in conjunction with claimants themselves, so that more comprehensive and tailored support is achieved. These Personal Advisers should be integrated into the wider partnerships of all local providers and public agencies.

Chapter five demonstrates that in order to fund the more intensive and personal approach, an ‘invest to save’ proposal should be adopted, building on the AME-DEL model recommended by Freud in 2007. On current trajectories, we estimate that by investing upfront in back to work support, a reduction of just five percentage points in the numbers going onto 12 We Can Work It Out

welfare benefit could yield £1.4billion in 2010/11.

Not only should the savings to the DWP and the Exchequer be calculated, and used to fund up-front investment, the broader cost to the public purse should be assessed. Evidence shows that unemployment is a key driver for other costly social disadvantages such as health, social care, and vulnerability to criminality. By calculating the financial impacts on the broader public purse in areas such as council tax, housing benefit, social care and the cost to the health and criminal justice systems, government should use hypothecated savings to fund programmes to get people urgently into work.

•• We recommend the Treasury leads an urgent programme of accounting reform which allows departments and their agencies, and we hope also local authorities, to adopt a comprehensive ‘invest-to- save’ approach – sometimes known as the AME-DEL arrangement where future savings can be brought forward to pump-prime early intervention programme expenditure. This approach should look across Whitehall for savings across the broader public purse in areas such as health and criminal justice to fund employment programmes.

In the final chapter we set out a challenge to local authorities to play a far greater role in stimulating growth and strengthening their economies. Matching the supply of labour to current employment vacancies is essential, but not enough in the face of the economic challenge. We call for a new economic and skills activism to stimulate demand for jobs, to create the environment for new dynamic business opportunities and to act themselves to forge a new era of municipal entrepreneurship. We recommend that:

•• Local authorities should provide greater support for Business Angel Networks and could, themselves, adopt a new venture capital policy to supplement the currently low level of privately available investment capital. Councils should act as municipal entrepreneurs to create new public and public-private companies and support the creation and development of social enterprises, entities that might then in future be divested from public ownership at an appropriate stage of development. This new entrepreneurial activism should be encouraged by offering better financial incentives for local authorities to catalyse local economic growth and stimulate new jobs. We Can Work It Out 13

Local authorities should be at the heart of the local eco-system of third sector and wider public sector bodies, harnessing the potential of their communities, and demonstrating leadership. They must do far more to ensure that the wider public and social economy is utilised to provide training and job opportunities for local citizens. As often one of the biggest employers in localities, councils should play a leading role in the direct provision of apprenticeship places offering work-based experience and learning. We recommend that:

•• Local authorities lead by example in their employment and procurement policy to ensure better apprenticeships, skills training and job opportunities for their residents. Councils should use their new legal powers under the ‘duty to cooperate’, where necessary, to ensure that other public sector partner agencies also amend their employment and procurement policies to better favour local job creation and training.

The economic challenge demands a fundamental step-change in the way central and local government delivers on employment and skills. This will require a radical rethink in the dynamic between the citizen and the state. People need to be empowered and offered greater support so that they have far more control and choice, but local authorities – with their local democratic mandate – must also lead on guiding those choices based on the economic priorities of their economy.

The eco-system of services available to individuals, particularly those most excluded from the labour market, must be personalised and tailored around them. This requires a level of flexibility, co-ordination and responsiveness on the front-line which local authorities and local delivery partners are best positioned to achieve.

Moreover, we need to urgently and fundamentally reconstruct the architecture of the skills and employment system to allow a far more devolved and flexible approach, that is not based around programmes, age-categories and funding streams but round the specific needs of particular places and, crucially, individuals.

To achieve this radical new approach we need to move beyond the concept of “demand-led” skills, where employers and learners drive learning, towards 14 We Can Work It Out

a “place-led’ era rooted in an area’s unique assets, characteristics and economic potential.

Local authorities must be at the heart of this new era, working collaboratively, to orchestrate opportunities and drive economic growth. It means enabling our local places to build economic resilience to weather future storms, whilst meeting the demands of learners and employers and breaking cycles of worklessness and dependency. We Can Work It Out 15

1 A new and challenging economic context

The UK has experienced a severe recession and is in the midst of the worst economic circumstances for decades. There has been a large rise in unemployment, and public spending will be under severe pressure in the years ahead. This chapter considers the progress made before the recession hit and the impact the recession has had as well as examining the daunting employment and skills challenge this country faces. We focus particularly on the challenge of “worklessness” – people excluded from the labour market for long periods – and “NEETS” – young people not in education, employment or training.

This chapter also emphasises the spatial dimension, with differences between regions and even greater contrasts within regions. Moreover, within localities and communities the different demographics of unemployment are stark.

Pre-recession progress

Important progress was made before the recession hit and advances in tackling unemployment and improving skills have been achieved in recent years.

The number of people in work reached a record high of 29.5 million in the summer of 2008, while the level receiving out-of-work benefits was below 1 million – down half a million from 1997, and down two million from 1992.

The proportion of eligible workers claiming out-of-work benefits nearly halved between 1997 and 2008 – down from 4.4% to 2.3% and these improvements were felt nationwide, with a considerable narrowing between areas with the lowest and highest unemployment rates (see graph on the following page).1

1 CLG (2008), ‘Tackling worklessness: A review of the contribution and role of English local authorities and partnerships’ 16 We Can Work It Out

Figure 1 Gap between the highest and lowest unemployment rates

20 Maximum gap 14.6% Gap January 2009 6.2% 18 September 1995 Last gap this large March 2001

10 Minimum gap 4.6% 8 January 2008

6 jobseeker’s Allowance of UB Allowance jobseeker’s 4

Per cent of working age population claiming cent of working Per 2

0 January January January January January January January January January 1992 1994 1996 1998 2000 2002 2004 2006 2008

Source: Claimant count rates, NOMIS

Progress was also made in training both young people and adults. Between 2001 and 2008, the proportion of the population that achieved at least a Level 2 qualification increased from 65% to 71%.2 Important achievements have also been made for adult learners. Between 2001 and 2008, more than 2 million adults earned a first qualification and 1.7 million adults completed a level 2 qualification. In total, nearly 75% of the adult workforce now holds at least a level 2 qualification.3

The recession earthquake

Since the collapse of the sub-prime market in Autumn 2008 and the subsequent descent from a credit crunch into a full-blown economic recession, the Government’s achievements in tackling unemployment have been severely threatened.

The number of unemployed adults and young people has risen dramatically in the past year. As a result, 3.3 million households – one in six work-

2 BIS (2009), ‘Skills for Growth: The national skills strategy’ 3 DCSF (2008), ‘Raising expectations: Enabling the system to deliver’ We Can Work It Out 17

eligible homes in the UK – are now workless [without a working adult].4

In the face of recession, the Government has taken steps to try and limit the erosion of the gains of the last decade. The Government has stepped-up efforts to meet the new needs for skills and jobs created by the recession. The combination of the fiscal stimulus package and the Bank of England’s monetary policy is predicted to protect half a million jobs.5 Beyond this, the Government has announced billions of pounds of investment in both skills training and targeted industry support to cope with job losses and to ready the economy for the future, including: 6

•• £5 billion in adult skills training to move benefit claimants back into the workforce

•• £1.3 billion extra funding for Jobcentre Plus

•• £1 billion in the Future Jobs Fund, which is expected to create 150,000 new jobs

•• £1 billion in apprenticeship programmes

•• £1 billion in Skills for Life, a programme that offers basic skills qualifications

•• £1.4 billion targeted at training and investments in the low-carbon economy

•• £150 million targeted at improving the manufacturing skills base and encourage the take-up of new technologies

Despite these efforts, we are faced with rising unemployment that threatens both to drain public coffers and pose social problems that could linger for years to come.

4 ONS (2009), ‘Work and worklessness among households 2009’ 5 HM Government (2009), ‘Jobs of the Future’ 6 ibid 18 We Can Work It Out

Figure 2 Working age employment and Unemployment rate7

Working age employment rate Unemployment rate

75.5 8.0 Seasonally adjusted Seasonally adjusted Sampling Variability +/- 0.4% Sampling Variability +/- 0.3% 75.0 7.5

74.5 7.0

74.0

% of working age % of working 6.5 73.5

% of all economically active 6.0 73.0

72.5 5.5

Jul- Jul- Jul- Jul- Jul- Jul- Sep Sep Sep Sep Sep Sep 2007 2008 2009 2007 2008 2009

Although there are indications – from the latest figures available at the time of writing – that unemployment may be reaching its peak, some predictions suggest unemployment may continue to rise.

Figure 3 UK Unemployment (International Labour Organisation)8

Estimate Actual

2,700,000

2,500,000

2,300,000

2,100,000

1,900,000

1,700,000

1,500,000 Jul-Sep Oct-Dec Jan-Mar Apr-Jun Jul-Sep Oct-Dec Jan-Mar Apr-Jun Jul-Sep 2007 2007 2008 2008 2008 2008 2009 2009 2009

7 ONS (2009), ‘November 2009 - Labour Market: Employment rate falls below 72.5 per cent’ 8 Centre for Economic Inclusion (2009), ‘Labour Market Statistics: November 2009’ We Can Work It Out 19

This increase in unemployment is illustrated by the steady rise in JSA claimants. The total claiming Jobseeker’s Allowance benefits reached 1.64million in October 2009, the highest number of claimants since April 1997.9 Much of the Government’s progress of the last decade has been cancelled out: between July 2008 and July 2009, claimant rates rose from 2.3% to 4.2%.10

Crucially, statistics show that claimants are staying on JSA longer than previously. This is worrying since we know that the longer a person is out of work, the harder it is to get back into the labour market.

Figure 4 Jobseeker’s Allowance - claimants staying through each three- month threshold (seasonally adjusted).11

85%

80%

75%

70%

65%

60%

55%

50%

45%

40%

Oct 2007 Jan 2008 Apr 2008 Jul 2008 Oct 2008 Jan 2009 Apr 2009 Jul 2009 Oct 2009

New claimants staying to 3 months 3-6 months staying to 6-9 months 6-9 months staying to 9-12 months

9-12 months staying to 12-15 months 12-15 months staying to 15-18 months

Some predictions expect the long-term unemployment rate to continue rising to reach 1.1 million in 2012 – six times the 2007 rate. This will mean that long-term claimants will comprise 40% of the total claimant count.12 DWP projections suggest that unemployment will not reach pre-recession levels for many years to come.13

9 ONS (2009), ‘November 2009 - Labour Market: Employment rate falls below 72.5 per cent’ 10 NOMIS (2009), Claimant rates 11 Centre for Economic and Social Inclusion (2009), ‘Labour Market Statistics: November 2009’ 12 SMF (2009). ‘The jobs crisis and what to do about it’ 13 Conservative Party (2009), ‘Get Britain Working’ 20 We Can Work It Out

Figure 5 Government projections for JSA claimants (000s)

3,50

3,00

2,50

2,00

1,50

1,00

0,50

0 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2015/18 2018/19 2019/20 2020/21

Source: DWP, Jobcentre Plus Workload Projections, April 2009

The vacancy to unemployment ratio

While unemployment numbers convey part of the current problem, the situation becomes more stark when considering the shrinking number of jobs available for this growing jobless group. With the economy in recession, fewer new jobs have been created while existing jobs have been cut. Annual redundancies nearly doubled in 2009 – up by 150,000 to 277,000.14

As a result more workers are chasing fewer jobs. In May 2009, there were 7 job seekers for every one vacancy in England and Wales – up dramatically from 2.1 in 2008.15 In the third quarter of 2009, there were only 428,000 vacancies nationwide, a record low since comparable statistics were first recorded in 2001.16

14 ONS (2009), ‘November 2009 - Labour Market: Employment rate falls below 72.5 per cent’ 15 LGA (2009), ‘The growth of claimant unemployment to vacancy ratio by area’ 16 ONS (2009), ‘November 2009 - Labour Market: Employment rate falls below 72.5 per cent’ We Can Work It Out 21

Figure 6 The vacancies and unemployment ratio 17

50%

45%

40%

35%

30%

25%

20%

15%

10%

Oct 2007 Jan 2008 Apr 2008 Jul 2008 Oct 2008 Jan 2008 Apr 2009 Jul 2009 Oct 2009

The proportion of residents claiming Jobseeker’s benefits has increased throughout the country, doubling in some areas. In February 2008, only five local authorities had more than 5% of the population claiming Jobseeker’s benefits. A little more than a year later in March 2009, 83 local authorities had reached this claimant rate.18

Differences between areas

Aggregate unemployment, benefit claimant, and redundancy figures paint a grim national picture but obscure the complexity of the problem. There are important geographical and demographic differences in unemployment, and the recession has served to both exacerbate these disparities and create new challenges. The rate of unemployment varies by Government Office Region and though the unemployment rate had risen in all regions, there were significant differences in the amount it had increased.19

17 Centre for Economic and Social Inclusion (2009), ‘Labour Market Statistics: November 2009’ 18 ONS (2009), ‘Jobseeker's Allowance claimants by percentage and local authority Jan 2008-present’ 19 ONS (2009), Unemployment rate by local Govenment Office Region 22 We Can Work It Out

Figure 7 Unemployment rate by local government office region20 UK UK 5.2 7.8

London North East West Midlands North West East Midlands Wales Yorkshire and the Humber Scotland East Northern Ireland

South East Jan-Mar 2008 South West Jul-Sep 2009

0 1 2 3 4 5 6 7 8 9 10 11

Rate (%)

It is an important fact that differences in employment rates in local areas within regions are greater than differences between regions. Those towns and cities with higher average unemployment rates have tended to experience higher average growth in unemployment since the recession, although the pattern is far from predictable, with the West Midlands, Wales and Yorkshire and Humber disproportionately affected.

20 ONS (2009), ‘Local employment rates vary between 58.1% and 86.7%’ We Can Work It Out 23

Figure 8 Map showing percentage of working age population claiming job seeker’s allowance 21

Analysis by the Local Government Association shows that there is substantial spatial variation in the ratio of claimants to vacancies, with significant differences from one area to another. 22

21 ONS (2009), ‘Map - Percentage of working age population claiming Jobseeker's Allowance’ 22 LGA (2009), ‘The growth of claimant unemployment to vacancy ratio by area.’ 24 We Can Work It Out

Figure 9 Map showing claimants per vacancy, May 2009

Evidence suggests that different places take different amounts of time to recover from different recessions because each recession has different underlying economic dynamics. After the 1980 recession, residual unemployment (the difference between unemployment going into the recession and coming out of it) was highest in Liverpool, Manchester, We Can Work It Out 25

Sheffield, Leeds, Birmingham and Newcastle upon Tyne, whilst after the 1990 recession residual worklessness was highest in Stoke on Trent and Cornwall.23

Differences within areas

Digging deeper, there are also important variations in the impact of the recession within geographical areas on different segments of the population. Different sub-groups have been hit by the recession to varying extents, changing the face of unemployment and worklessness across the country.

The vast majority (80%) of those who claim Jobseeker’s Allowance benefits are out of work for less than six months, but 8% continue receiving benefits for more than one year.24 As of July 2008, the number of long-term claimant recipients had reached 144,260, up 44% from the previous year.25

Some regions have seen larger increases in long-term unemployment than others. The long-term workless populations in Yorkshire and the Humber, the South East, and the South West all jumped by more than 65% between 2008 and 2009.

The recession is also changing the skill make-up of the country’s workless population. Skilled workers are experiencing unprecedented spikes in unemployment, with a 200% increase among engineers and a 75% increase among production managers.26

Youth unemployment

One of the most startling disparities in workless rates is between young and adult workers, and the situation appears to be worsening for some youths in the recession. Both central and local government are particularly concerned about young people who are neither in education nor employment.

Historically, the UK has performed poorly on education and training participation measures. In a recent study of OECD countries, the UK ranked

23 LGA (2009), ‘From recession to recovery II: a focus on unemployment’ 24 Houses of Parliament (2009), ‘Work and Pensions Committee: DWP’s Commissioning Strategy and the Flexible New Deal’ 25 NOMIS (2009), Claimant count data 26 NESTA (2009), ‘The nature of unemployment is changing: the UK needs new tools to tackle it’ 26 We Can Work It Out

24th out of 30 countries on 17-year-old participation.27 Despite higher per child education and social spending than the OECD average, the UK has the 4th highest rate of 15 to 19-year olds not in education, employment, or training (‘NEETs’) – ahead of only Italy, Turkey, and Mexico.28

To address this lag, DCSF set a PSA target to reduce the proportion of 16 to 18-year-old NEETs by 2 percentage points, from 9.6% in 2004 to 7.6% in 2010. Local authorities have echoed this national enthusiasm for cutting NEET rates. In 2008, reducing NEETs was the most common target selected in Local Area Agreements, with three-quarters of local authorities identifying it as a priority.29 At the end of 2008 the “September Guarantee” offered every 16 and 17 year old a place in education and learning.

Figure 10 NEET, age 16 -1830

20% NEET 16-18 18%

16%

14%

12%

10% 8% 6% NEET LFS 4% a .NEET SFR measure 2% 0% 1991 2001 2007 1984 1985 1986 1987 1988 1989 1990 1992 1993 1994 1995 1996 1997 1998 1999 2000 2002 2003 2004 2005 2006 2008

Despite this mobilization, the number of young people not in education, training, or employment increased during the recession.

27 DCSF (2008), ‘Reducing the number of young people not in education, employment or training (NEET): The strategy’ 28 OECD (2009), ‘Doing Better for Children’ 29 CLG (2008), ‘Target shake up delivers stronger focus on issues that matter to the public‘ 30 LGA (2009), ‘Hidden Talents: Re-engaging young people’ We Can Work It Out 27

Overall, the highest rates have been found in the North East, North West and Yorkshire and the Humber – particularly in areas that have had job losses in the ship-building and coal-mining industries.31

Figure 11 Regional NEET, age 16-18, Nov 2008 - Jan 2009 Average32

12%

10%

0% South London East of South West East Yorks & North North East England West Midlands Midlands Humber West East

Souce: CCIS data Note: Connexions data are available at local authority level, and are published annually on the DCSF 14-19 website.

Much of the focus at the central and local levels has been on promoting education and jobs for under-18s, but the recession has highlighted the troubling situation for older NEETs as well. In June 2009 the number of 16 to 24-year-old NEETs reached a record level of 959,000, with nearly 90% of this young jobless group being older than 18.33

The older NEETs – those between 18 and 24 years old – have alarmingly high unemployment rates compared to the general population. In 2008, for almost every sub-group – broken down by gender, race, region, and educational attainment – 18 to 24-year-olds had unemployment rates more than twice that of the general population.34 Between mid-2008 and early

31 DCSF (2008), ‘Reducing the number of young people not in education, employment or training (NEET): The strategy’ 32 DCSF (2009), ‘NEETs Statistics: Quarterly Brief’ 33 The Municipal Journal, ‘Neets crisis sparks calls for rethink over targets’ 20-08-09. 34 Bell and Blanchflower (2009), ‘What should be done about rising unemployment in the UK?’ 28 We Can Work It Out

2009, unemployment for 18 to 24-year-olds rose 4.2 percentage points to 17.6%, during the same period, unemployment in the general population only increased from 5.8% to 7.2%.35

Figure 12 Percentage unemployed by age group

Percentages 30

16-17 20

15 18-24

5 All aged 16 and over

0 May-Jul Jun-Aug Ju-Sep Aug-Oct Sep-Nov Oct-Dec Nov-Jan Dec-Feb Jan-Mar 1992 1994 1996 1998 2000 2002 2005 2007 2009

Latest figures show that as the recession has set in, the situation has worsened for young people – with the number of NEETs reaching just under 1 million and the ratio of 16 to 24-year-olds out of work swelling to a new high of nearly 20 per cent.36 Firms are more likely to make inexperienced young people redundant and first-time job seekers are entering a competitive and shrinking job market. This widening gap illustrates the uneven impact of the recession on young workers and the need for urgent attention.

On the day this report went to print the Government announced that it would introduce; a ‘January Guarantee’ in 2010, giving every 16 and 17 year old

35 LGA (2009). ‘Hidden Talents: Re-engaging young people.’; Bell and Blanchflower (2009), ‘What should be done about rising unemployment in the UK?’ 36 ONS (2009) ‘Labour Market Statistics: November 2009’ We Can Work It Out 29

not in education employment or training the offer of a place with an Entry to Employment provider; a ‘Graduate Guarantee’ that all new graduates still unemployed after six months will have access to an internship, training or help to become self-employed; a new ‘Young Person’s Guarantee’ so that all 18-24 year olds still unemployed after six months will be guaranteed a job training or work experience.37

Why at-risk groups matter

As the previous section demonstrates, worklessness is a not a one-dimensional problem. On aggregate unemployment has risen across the UK, but on closer inspection, there are specific localities and demographics that have been especially hard hit. In particular, two at-risk groups stand out: the long-term workless and the NEETs. Although these groups may be harder to reach and may require different types of help to re-train and find employment, it is crucial for both economic and social reasons that we do not fail them.

Over-concentration on new inflows should not negate good progress on reaching those furthest from the labour market. The long-term workless have a far higher risk of remaining unemployed. The longer a person is out of work, the more difficult it can be to return to the labour market and a number of consequences of unemployment contribute to this, such as deteriorating physical and mental health. Moreover, the long-term unemployed often do not have the skills demanded by the quickly-changing job market. Employers are more likely to favour new labour market entrants, women returning to work, and people relocating to the area. Furthermore, the long-term unemployed may have personal health or childcare circumstances that prevent an easy transition back into the workplace.38

The threat of persistent joblessness among this group can have important individual, economic and societal consequences. Research suggests that if the long-term unemployed were to remain jobless for an additional year, their earnings upon re-entering the workforce would be 10% lower. This loss is likely to be permanent, resulting in an overall productivity loss of £2.8 billion per year for the country. If high levels of long-term unemployment persist for two

37 DCSF, SWP, BIS (2009), ‘Investing in Potential: Our strategy to increase the proportion of 16-24 year olds in education employment or training’ 38 Joseph Rowntree Foundation (1998), ‘Local responses to long-term unemployment’ 30 We Can Work It Out

years, the permanent productivity loss could be as high as £5 billion per year.39

As the period of unemployment extends, individuals are more likely to deplete their savings, to experience increased stress within their family, and be forced out of their homes.40 Psychologically, individuals who have been out of work for long periods experience more social isolation, shame, stigma, alienation, and erosion of confidence.41

Tackling long-term unemployment could also have important consequences for social inequality. There are some demographics that are more likely to be long-term unemployed than others, namely black and ethnic minorities, lone parents,42 older men, disabled people and those with low qualifications.43 Targeting the long-term unemployed could serve to reduce social disparities for these groups. This could be particularly key in light of the government’s proposals in the forthcoming Equality Bill that puts a duty on public sector bodies to ‘narrow the gap between rich and poor’.

Figure 13 Characteristics of the long-term unemployed

80%

70%

60%

50%

40%

30%

20%

10%

0% Children BME Groups Foreign Born Male 50+ Disability 1 to 2 years unemployed Source: Labour Force survey 2004-2007

39 SMF (2009). ‘The jobs crisis and what to do about it’ 40 London Councils (2009) ‘Worklessness costs audit’ 41 Business Council of Australia (1998), ‘The social consequences of unemployment.’ 42 London Councils (2009) ‘Worklessness costs audit’ 43 Houses of Parliament (2009), ‘Work and Pensions Committee: DWP’s Commissioning Strategy and the Flexible New Deal’ We Can Work It Out 31

The rising number of NEETs is fuelling fears of a ‘lost generation’ of young workers. Without adequate skills or work experience, the country’s up-and- coming workforce may never develop the skills needed to contribute to a productive and competitive national economy. They could cost central and local government billions in welfare support as they fail to reach their full earnings potential and endure social problems for years to come.

“Unemployment while young, especially for a long duration, causes permanent scars rather than temporary blemishes. For the young a spell of unemployment does not end with that spell; it raises the probability of being unemployed in later years and has a wage penalty. These effects are much larger than for older people.” 44

The NEET problem has both individual and societal implications. For individuals, there are both financial and social consequences of being NEET. Being NEET has been found to be linked to:

•• Low socio-economic status45 •• Future unemployment46 •• A long-term earnings ‘scar’ of up to 15%47 •• Decreased willingness for individuals to invest in education and training48 •• Teenage pregnancy49 •• Depression, low-self-esteem, and feelings of helplessness50 •• Poor physical health51 •• Suicide and other causes of premature death52

Getting more young people into education, training, and employment would help individual life chances, but it would also have important social and

44 Bell and Blanchflower (2009), ‘What should be done about rising unemployment in the UK?’ 45 Kent County Council. ‘Skills for the 21st century: No more wasted opportunities – Policy Discussion Paper’ 46 DCSF (2009), ‘Every Child Matters: Young people not in education, employment or training (NEET)’ 47 LGA (2009), ‘Hidden Talents: Re-engaging young people.’ 48 Centre for Cities (2009), ‘Sticking plaster or stepping stone? Tackling urban youth unemployment’ 49 DCSF (2009), ‘Every Child Matters: Young people not in education, employment or training (NEET)’ 50 Bell and Blanchflower (2009), ‘What should be done about rising unemployment in the UK?’ 51 DCSF (2009), ‘Every Child Matters: Young people not in education, employment or training (NEET)’ 52 Times Education Supplement, ‘Top mandarin: 15% of Neets die within 10 years’ 07-08-09; Bell and Blanchflower (2009), ‘What should be done about rising unemployment in the UK?’ 32 We Can Work It Out

economic benefits. The potential societal impacts of targeting this group are impressive: although 16 to 24 year olds make up only 15% of the working age population, they comprise 42% of the unemployed. Tackling unemployment in this group of young minds and long-term potential could go a long way in raising national productivity and cutting public expenditures.

Skills for employment and prosperity

The chances of being in employment increase markedly with education. A strong employment and skills system is crucial if we are to ensure individual and national prosperity. The employment rate of those with Level 2 qualifications is over 50% higher than for those with no qualifications, and wage returns are even greater for people with Level 3 and Level 4 qualifications.53

Were skills to rise to the level of the United States, the UK could increase its GDP by up to £32 billion, or £1289 per household.54 Skills training for tomorrow’s workforce is necessary to catch-up and keep-up with competitors around the world.

International comparisons, with Germany, France and the United States show that the UK has too may low-skilled and unskilled people and too few people with intermediate skills. 55 The UK also lags behind Germany, France, and the United States in productivity – a situation that costs the economy billions and threatens to worsen if skills do not improve in the next generation of workers. It is estimated that half of the country’s productivity gap with Germany is due to skill shortages.56 A one percentage point increase in the proportion of employees trained is associated with an increase in productivity of 0.6% percentage points – which in turn is worth around £6 billion a year to the UK economy.57

In the past two decades, there has been a shift in job demand away from low- skill occupations. Since 1988, the UK’s agriculture, manufacturing mining and

53 BIS (2009), ‘Skills for Growth: The national skills strategy’ 54 Reform (2008), ‘Shifting the unequal state.’ 55 BIS (2009), ‘Skills for Growth: The national skills strategy’ 56 Kent County Council. ‘Skills for the 21st century: No more wasted opportunities – Policy Discussion Paper’ 57 Rennen, Reed and Dearden, (2005), ‘The impact of training on productivity and wages: Evidence from British panel data’, Institute of Fiscal Studies. We Can Work It Out 33

utilities sectors have shrunk by more than 20%. Meanwhile strong growth has been recorded in the service, education, health, and public administration sectors.58 Sectoral adaptation is expected to continue, and the Leitch Report estimated that by 2020 the number of jobs requiring only basic skills will shrink from 3 million to a projected ½ million.59

Figure 14 National changes in employment by industrial sector, 1988- 200460

80%

60%

40%

20%

-20%

-40%

-60%

-80% Agriculture Construction Transport & Transport Manufacturing Other Services Communictinos Retail, Hotels & Retail, Communication Public Admin Mining & Utilities Education, Health & Professional Services Professional Business Finance and

58 HM Government ( 2009), ‘Jobs for the Future’ 59 Kent County Council. ‘Skills for the 21st century: No more wasted opportunities – Policy Discussion Paper’ 60 HM Government ( 2009), ‘Jobs for the Future’ 34 We Can Work It Out

Figure 15 National projected expansion in demand by occupation 2004-2020 61

Elementary Occupations projected expansion in numbers (000s) Machine and Transport Operatives

Sales and Customer Service Occupations

Personal Service Occupations

Skilled Trades Occupations

Administrative and Secretarial

Associate Professional and Technical

Professional Occupations

Managers and Senior ofﬁcials

-1000 -500 0 500 1000 1500

To meet the needs of businesses and to increase our economic competitiveness dramatic skills improvements are vital. The chances of getting a new job or progressing to a better job are improved if individuals have the right skills set. The challenge then is not only to ensure that people are equipped for the jobs of today but also for the jobs of tomorrow.

Conclusion

This current recession has wreaked havoc on the labour market. This chapter has highlighted how it is:

•• driving up unemployment •• increasing the length of time people are spending on benefits •• dramatically reducing the vacancy to employment ratio •• driving huge variation and discrepancy between and within places •• disproportionately affecting young people •• keeping ‘at risk’ groups from form the labour market •• reshaping the skills requirements of our workforce

61 Cabinet Office (2008), ‘Realising Britain’s Potential: Future Strategic Challenges for Britain’ We Can Work It Out 35

The employment and skills challenges are complex and the economic downturn is affecting different communities, groups and individuals in different ways. In the following chapters we argue that failure to adopt a more devolved approach will limit the ability of places to recover from the terrible impacts of recession. 36 We Can Work It Out

2 The employment and skills system(s)?

Before recession hit, the Government recognised that more of the same in the employment and skills system was not enough, with reforms such as the abolition of the Learning and Skills Council (LSC) and introduction of the Flexible New Deal. There was and remains widespread recognition by Minsters of the need to simplify and streamline the machinery to get people into the right training and into work. This chapter outlines the main elements of the Government’s reforms and argues that half- hearted devolution has led to new complexities and dislocation.

Phasing out the LSC

The current system for improving skills and expanding employment is sprawling and over-complex. It has been described as a ‘layer-cake of institutional and programmatic complexity’.62A ‘maze’ of ‘unwieldy’ relationships between four Government departments and at least 29 separate agencies or quangos.63 Adding to the complexity seems to be the sector’s almost constant state of ‘reform’.

Chris Humphries, Chief Executive, of the UK Commission for Employment and Skills (UKCES), describes the system as “over-complex”, “incredibly crowded” and “very difficult for any employer to navigate”.64 He told a Commons Committee that “I don’t think there’s an employer in the land who understands what the new systems are” and, when asked how many skills bodies there are he replied “I haven’t got the foggiest idea”.65 In 2007 the National Audit Office (NAO) was given the unenviable task, by the House of Commons Education and Skills Select Committee, of mapping the functional relationships that exist between key agencies:66

62 Coffield (2008) ‘Just suppose teaching and learning became the first priority…’, Learning and Skills Network. 63 Haldenby, A., Rainbow, H., Thraves, L. and Truss, E. (2008) ‘The Mobile Economy’, Reform 64 The Guardian (2008), ‘Time for skills to slim down’, 20-05-08 65 The Financial Times (2008), ‘Executives attack state skills bodies’, 26-06-08 66 National Audit Office (2007), ‘Written Evidence to The House of Commons Select Committee on Education and Skills March 2007’ We Can Work It Out 37

Figure 16 Organisations in partnerships involved in the delivery of the Government’s skills agenda.

Department for Education and Skills Higher Education Funding KEY Council for England

Delegation, representation Sector Skills National Learning Department for of participation Development Agency and Skills Council Work and Pensions Ofsted/ Adult Lead Sector Skills Councils Learning Employers Inspectorate Regional Learning Skills for Business Local Department and Skills Councils Higher Network Authorities of Trade and Education Quality Chambers of Industry Institutions Improvment Commerce Schools and Agency Sixth Forms Government Independent Ofﬁces Training Providers Further Education Regional Colleges Development Jobcentre + Agencies

Small Adult and Business Community Service Education

Business Link Network Connexions Services Trade Unions

Work-based learning providers

Regional Skills Lifelong Learning Regional Quality Partnerships Learning Partnerships Young Apprenticeship Educational Business Aim higher Networks Improvement 14-19 Partnerships Development of regional Promote a culture of Partnerships offer Partnerships Consortia Partnerships Developments of joint Partnerhips Delivery of 14-19 strategy for the delivery provider collaboration pupils, based in to provide work Regional partnerships approaches to identify post-16 entitlement, principally of adult skill and across sectors to schools, work experience and to improve access to encouraging improvement needs and Specialised Diploma work-based support lifelong experience as part placements for HE for young people vocational and priorities, leading to from sept 2008 learning to support of vocational from disadvantaged work-based learning and local Regional Quality students and teachers Regional qualiﬁcations backgrounds learners to progress regeneration strategies into HE Economic Strategy

Since 2001 the Learning and Skills Council (LSC) has funded all learning for young people, aged 16–19 in colleges, schools and training providers. Regional LSCs are also responsible for planning and funding adult education and training for everyone in England, other than those in universities. But this system is undergoing far reaching redesign and this year the LSC will be wound up.

The Review of Sub-National Economic Development and Regeneration (SNR) and the Prime Minister’s Machinery of Government changes were the start of this latest wave of education and skills reform.67 At the heart of this agenda was the devolution of £7bn of funding and responsibility for 16-19 skills provision from the Learning and Skills Council (LSC) to local authorities. Central government realised that ‘…the ever increasing pace of change means the skills landscape too must change, and itself be flexible and responsive to new challenges’.68

67 HMT, CLG and BERR (2007), ‘Review of Sub-National Economic Development and Regeneration’ 68 DCSF and DIUS (2008), ‘Raising Expectations: enabling the system to deliver’ 38 We Can Work It Out

Initially, some hoped that responsibility and funding for post-19 education would also be devolved to local authorities, creating a unified and localised skills system. As a joint Campaign for Learning and Select Education policy pamphlet stated, “19+ LSC funding was in the frame, but in the end the new Brown Government opted for 16-19 LSC Funding”.69

Streamlining the skills system has been touted as a goal of the reorganisation. In 2008, shortly after the Department for Education and Skills was dissolved, the Government disbanded the National Skills Alliance – a lumbering body made up of four Government departments, the Learning and Skills Council, Jobcentre Plus, the Higher Education Funding Council of England, and a range of external organisations. In its place, the UK Commission for Employment and Skills (UKCES) was created. The UKCES is an employer-led body designed to manage the national skills strategy and advise high levels of Government in improving skills and employment.70

However, under the Government’s education and skills model three new agencies will also be created to deliver the Government’s skills agenda from this year. The Learning and Skills Council (LSC) is being divided into two new agencies; the Skills Funding Agency (SFA), which will fund skills development for those aged 19 and over and manage the new National Apprenticeship Service (NAS); and the Young People’s Learning Agency (YPLA), which will manage the programme for 14-19 year olds.

There is concern that rather than simplifying the skills landscape the latest wave of reforms has served to make it even more complex. The new system seems inconsistent with the broader ambitions stated by Ministers to de- clutter and decentralise the skills system. With public spending coming under pressure in the years ahead the sustainability of this bureaucratic system is rightly being questioned.

14-19 Learners

The new system will devolve responsibility and accountability for the 14-19 age group to local authorities, who will take on a new commissioning role in

69 Corney and Fletcher (2008), Campaign for Learning and Select Education Pamphlet, ‘New Localism and 14-19 Funding: Putting Learner Choice First’ 70 UKCES (2009), ‘Strategic Plan 2009-2014’ We Can Work It Out 39

2010/11. By 2013 local authorities will have a statutory duty to deliver full participation in education for all 17 year olds (rising to include all 18 year olds by 2015).

The Government has stated that new planning and commissioning powers will allow local authorities to expand strong skills provision and cease to fund weak provision. Every young person will be entitled to a new curriculum, which includes new diplomas and an apprenticeship to any student that wants one. Local authorities will also be given primary responsibility for planning and funding of provision for the education and training of young people in juvenile custody and for those with learning difficulties and/or disabilities (LLDD), who have an entitlement to education or training up to the age of 25.

To co-ordinate provision and meet learner demand, local authorities have formed collaborative sub-regional groupings for their commissioning where appropriate. The YPLA has been tasked with ‘support of commissioning decisions’ and will retain budgetary control by holding the ‘16-19 capital pot’.71 Local Authority Commissioning Plans will have to be signed-off by the YPLA regionally and funding will then be calculated by the YPLA according to a national funding formula. Funding will be provided by the YPLA to local authorities, who will pay colleges and providers in the same way and on the same schedule as the LSC does now.72

Some local authorities feel that the Government is backtracking on its original commitment to devolve funding for FE colleges to local authorities. London Councils argue that “instead the government… proposes setting-up new quangos and planning groups to agree commissioning strategies for those in 16-19 education, which London Councils considers to be wasteful and unnecessary”.73

Not only does the new system risk undermining Ministers’ ambitions to reduce less productive public expenditure, but that it gives local authorities accountability without power.

71 DCSF and DIUS (2008), ‘Raising Expectations: enabling the system to deliver’ 72 DCSF (2009), ’14-19 Reform: NCF- Funding’ 73 London Councils (2008), Press Release 04/06/08, ‘Boroughs - not quangos - are best placed to improve education in London’ 40 We Can Work It Out

“The YPLA function just seems to be completely superfluous for us and retaining the national funding formula in relation to vision just undermines the ability to commission and de-commission as we want to.” Local Authority Seminar Participant

The Government has stated that it will give every suitably qualified 16 and 17 year-old the national entitlement to an apprenticeship place by 2013. Under the Government’s new system, the SFA will manage the National Apprenticeship Service (NAS) and have end-to-end responsibility for the apprenticeships programme and the delivery of its targets.

The Government’s White Paper states that, “Each local authority will establish what supply of Apprenticeship places will be needed in order to implement this entitlement. This demand will be aggregated within the region and agreed with the NAS. It will then be the task of the NAS to provide the necessary Apprenticeship places… to deliver the entitlement in every part of the country’”74

Local authorities will be required to engage learners in apprenticeships, but the NAS will have responsibility for:75

•• engaging employers •• matching learners and employers •• funding/commissioning •• content and qualifications •• ‘co-ordinating the apprenticeship’ •• management information

The Government plans to set up a regional tier of NAS staffing (the NAS field force) who will be managed and owned nationally by the NAS. The NAS field force will engage with employers locally and regionally, account manage contractual relationships with employers, manage customer relationships with skills brokers and Sector Skills Councils and provide careers guidance in schools and colleges.

74 DCSF and DIUS (2008), ‘Raising Expectations: enabling the system to deliver’ 75 DCSF and DIUS (2008), ‘World-class Apprenticeships: unlocking talent building skills for all’ We Can Work It Out 41

However, if local authorities are to be given new statutory duties to ensure participation up to 19 and to ensure quality of provision it is inconsistent that they are not given some of these key responsibilities. As Corney and Fletcher argue:

“16-18 apprenticeships are viewed by Ed Balls, the Secretary of State for Children, Schools and Families, as the main pathway to increase participation at 17 and 18, paving the way for an increase in the learning leaving age. Yet it seems that Local Authorities will be responsible for ‘minimising truancy’ as the learning leaving age is increased without having responsibility for the key budget designed to achieve it.”76

We believe that it is unreasonable and ineffective to give local authorities new statutory duties to ensure participation up to 19 and to ensure quality of provision and yet to give someone else the funding and powers that will be vital in delivering these statutory duties.

“It might be argued, then, that what is being devolved to LAs [Local Authorities] is not so much power as the responsibility for administrating an extremely complex commissioning function, tough decisions around resource allocation and ‘who gets what?’ in a period of fiscal constraint, and the task of delivering participation through a set of 14-19 curriculum entitlements determined by central government.”77

Adult Learners

The changes to the post-19 skills system focus around developing market- based mechanisms for training providers and users. This new approach aims to meet both the demands of workers and employers through new schemes such as Skills Accounts and Train to Gain. With Skills Accounts, individuals are given flexible grants that allow them to take greater ownership over their FE choices. Meanwhile, Train to Gain is designed to respond to employers’ skills needs and link them to local training providers.

To support these skills schemes at the national level, the Skills Funding Agency (SFA) is set to take on the responsibilities of the LSC. From April 2010

76 Corney and Fletcher (2008), Campaign for Learning and Select Education Pamphlet, ‘New Localism and 14-19 Funding: Putting Learner Choice First’ 77 Payne (2009), ‘Scoring opportunity or hospital pass? The changing role of local authorities in 14- 19 education and training in England’, SKOPE Research Paper No.85 42 We Can Work It Out

the SFA will be the single funding provider for adult skills in England outside of higher education.

The SFA is tasked with managing the development of the FE system by responding to strategic skills bottlenecks, easing the way for providers to enter and exit the market, and creating a funding structure that is responsive to customer demands.

In addition to managing the National Apprenticeship Service (NAS), the SFA will also manage the National Employer Service (NES), which will operate at a national level to provide a skills service and apprenticeships to companies with over 5,000 employees. It will also lead the development of an adult advancement and careers service – a new effort to integrate the welfare and skills sectors through comprehensive advice services and local networks.

In 2008 NLGN articulated concerns about the skills system becoming bloated and of having the SFA operating alongside Regional Development Agencies (RDA) at the regional level. 78 The new Secretary of State, Lord Mandelson, has since outlined proposals to rationalise the RDA and SFA relationship under his new department. This will involve the transfer of the strategic skills function to RDAs to avoid duplication between the SFA and RDA.79

While this streamlining is a welcome improvement on the original model, there is concern about how locally responsive this regional tier will be. Moreover, some fear that the SFA, as a ‘Next Steps Agency’ of DBIS, will take over what look to be ‘planning’ functions at the regional and sub-regional tier in what would appear a centralising move.80

“…the combined effects of top-down policy-making and marketisation have contributed to the undermining of the local level of governance and institutions ability to respond to their local communities and local labour markets. The behaviour of education providers is principally driven by national policy levers, which continue to privilege competition over collaboration in a locality.”81

78 Hope, N (2008), ‘License to Skill’ 79 BIS (2009), ‘The Skills Funding Agency and Regional Development Agencies’ 80 Payne (2009), ‘Scoring opportunity or hospital pass? The changing role of local authorities in 14- 19 education and training in England’, SKOPE Research Paper No.85 81 Hodgson and Spours (2009), ‘Discussion Paper for New Direction in Learning and Skills in England, Scotland and Wales - Seminar 2: Governance, Devolution and Democracy: Learning and Skills Reform’ We Can Work It Out 43

Supporting young people not in education employment or training (NEETs)

The changes in the learning and skills sector will have important consequences for NEETs. By consolidating responsibility for the entire 14-19 age group, the new system has fewer overlaps in definitions, programmes and funding. This may allow for more holistic planning and it will eliminate the artificial line that has been drawn between 11-15 and 16-19 learners.

As responsibilities for training young people have shifted and split however, cracks have formed at some points in the system. There is a potential for sharp cut-offs in services as young people make the transition from 14-19 programmes to those geared towards adults.

“From the point of a very local level, when you look at the 19+ bracket for the area, you’ve got no flexibility to be able to put the funding into the older age bracket which is where it is needed and it doesn’t actually help you when you are trying to deal with the worklessness agenda.” Local Authority Research Seminar Participant

The lack of coherent services for NEETs aged 14 through to 25 is illustrated in the diagram on the following page: 44 We Can Work It Out

Figure 17 Age bands: 0-25 years 82

Age Bands

0-3 4-11 12 13 14-15 16 17 18 19 20 21 22-25

NEET group for deﬁnition for PSA DEFINITION and National Indicator -DCSF

NEET group for deﬁnition for Labour Force Survey -DWP

PARTNERSHIPS 14-19 Planning Partnerships

Early intervention projects PROJECTS Narrowing the gap

“Connexions” support

SUPPORT Extended “Connexions” support for Locked After Children

Extended “Connextions” support for LDD

Flexible Curriculum

Diplomas

LEARNING AND SKILLS Apprenticeships PROGRAMMES New Deal for Young People

Entry to Employment

FINANCIAL SUPPORT EMAs

LA commissiong from 2010

Young People’s Learning Agency replaces LSC from 2020

Skills Funding Agency replaces LSC from 2010

Adult Advancement and Careers FUTURE CHANGES Service from 2010

Raised participation Age 2013

Raised participation Age 2015

Foundation Learning Tier - 4 routes for 14-19s by 2010

82 LGA (2009), ‘Hidden Talents: Re-engaging young people’ We Can Work It Out 45

Beyond the ongoing general reforms in the skills sector described above – many of which affect both younger and older NEETs – the Government has also introduced measures over the past year to support NEETs in the recession. Starting in April 2009, anyone aged 18 to 24-year-old who has been NEET for six months is placed on the New Deal for Young People. This scheme provides NEETs with a personal adviser through Jobcentre Plus to help them find work and training opportunities.

For young people that remain NEET even after assistance from the New Deal, the Government announced in September 2009 a guarantee for all 18 to 24-year-olds out of work for 10 months. This Young Person’s Guarantee will in part be fulfilled through the Future Jobs Fund (FJF), which is set to create 150,000 additional jobs for young people in growth areas such as retail, hospitality, leisure, tourism and green industries jobs. The £1bn fund is open to any organisation from the public, private or third sector, but there is a strong preference for partnership bids.83

The FJF was seen as a welcome ‘shot in the arm’ by many of the local authority staff we spoke to in the course of the research for this project. However, it is a return to the approach of bidding for ring-fenced money from Whitehall, which seems inconsistent with central government’s commitment to reduce ring-fencing following the 2007 Comprehensive Spending Review. Moreover, there was a feeling among some of those interviewed that had made FJF bids that there was a lack of clarity from Whitehall from the outset about what they wanted, which generated unnecessary work and distractions for local authorities.

“It [The FJF] feels like a project on the hoof and it’s not been particularly well thought through.” Interview with Local Authority Director

“The bidding process was more like an expression of interest which was very vague with what they were looking for. There was a sense that there had been a ministerial announcement and officials had been struggling with this as the goalposts kept moving…. It could have been handled better.” Interview with Local Authority Officer

There were also concerns about the sustainability of these jobs given the

83 DWP (2009), ‘Future Jobs Fund: Guide to the Future Jobs Fund’ 46 We Can Work It Out

fairly limited time-scale for the funding, as well as the way the FJF is not properly integrated with wider programmes, leading to concern about how clients re-enter the system once their placement is over. Though many local authorities are managing to deliver a joined-up activity and working to deliver good outcomes locally, they are having to fit a top-down programme to local circumstances rather than implementing a more embedded and organic approach.

Unemployment and worklessness

Although skills, unemployment and worklessness are closely intertwined problems, the approach to improving skills and getting people back to work is split at the central level. On the unemployment and worklessness policy strand, the Department for Work and Pensions is responsible for serving jobseekers, getting them ready to re-enter the labour market, and helping them find jobs through Jobcentre Plus and the Flexible New Deal. Meanwhile, adult skills training is primarily the domain of the Department for Business, Innovation and Skills.

Under DWP, the welfare system for unemployed adults is designed to provide support and guidance to help them re-enter the workforce. Increasingly it also offers and requires skills training as part of the welfare-to-work approach. This support is delivered by Jobcentre Plus and independent providers, a system which, like the learning and skills sector, is undergoing changes.

The most prominent change in the system is the introduction of the Flexible New Deal (FND) – a replacement for the existing New Deal 18-24, New Deal 25 Plus, and the Employment Zones and subsuming New Deal 50 Plus, the New Deal for Musicians and self employment provision. The new programme does not eliminate the role of Jobcentre Plus, but rather introduces a more competitive and personalised structure with private and voluntary-sector providers for serving the hardest to reach – the long-term unemployed.

Under the job-seekers regime, benefit claimants go through a four-stage process on the road to employment. Jobcentre Plus delivers the first three stages of job search assistance during the first year of unemployment. Most jobseekers will remain in these three stages served by Jobcentre Plus, but an estimated one in ten will not find a job within one year. These individuals are then transferred to providers in the private and voluntary sectors, who We Can Work It Out 47

can address their unique needs with intensive personalised support and assessments. 84 After the first year of FND, customers will be given a choice of providers, supporting the competitive atmosphere.

The DWP’s new commissioning approach awards FND contractors on outcomes – a ‘black box approach’ – and incentivises them to secure sustainable employment for clients. Having an outcome-based approach to payment can play a powerful role in ensuring the success of getting people back to work and helping to keep them there. This emphasis on delivering outcomes rather than simply the delivery of set processes allows a greater on results rather than on procedures.85

National FND commissioning can bring economies of scale and has increased the entrance of international companies into the UK market. We are fortunate enough to have a diverse range of world-class independent providers that are both mainstream and niche, can draw on experience and international best- practice.

However, some criticism of current national commissioning arrangements of FND has suggested that awarding contracts on a regional basis does not allow sufficient local expertise, specialism or plurality.86

Experience so far shows that some providers are working well with local sub- contractors; indeed in some instances, FND has been a good way of engaging local organisations in contracts that they may not have had the capacity to deliver on their own. For example, A4e are subcontracting Sandwell MBC to deliver FND in the Black Country area. The Council has not delivered a Jobcentre Plus mainstream programme before, and believe that successful delivery on this contract could improve their chances of successfully bidding for large Jobcentre Plus mainstream contracts.87

Nonetheless, there remains concern about the minimal level of engagement and involvement local authorities have in the DWP’s national FND

84 Houses of Parliament (2009), ‘Work and Pensions Committee: DWP’s Commissioning Strategy and the Flexible New Deal’ 85 SMF (2008), ‘Flexible New Deal: Making It Work, Social Market Foundation’ 86 ibid 87 Sandwell Metropolitan Borough Council (2009), ‘Report to the Cabinet Members for Employment, Skills and Partnerships, 17th September 2009’; 48 We Can Work It Out

commissioning process. The DWP has emphasised that a key part of the FND programme is local partnership and in its 2008 report, ‘Raising expectations and Increasing Support: Reforming Welfare for the Future’, it set out three levels of devolving responsibility for the employment and skills system to local authorities:

•• Level 1: Local influence over contract specifications, full use of flexibility available within contracts, and improved communication between providers and local bodies

•• Level 2: Innovative funding streams to support shared commissioning within DWP’s contracts (to be implemented beginning in 2010, and fully by 2015)

•• Level 3: Devolving contracting responsibility to local or sub-regional partnerships with outcomes specified by central government (rolled out on a managed basis, with a number of authorities at this level by 2015)

The three levels of devolution sign-post a welcome direction of travel towards stronger local accountability and better join-up funding and services. However, local authorities and DWP will need to improve how they work together and develop new commissioning techniques, if these reforms are to take place widely and quickly.

The DWP states that the second level of devolution will be rolled out between 2010 and 2015, but only in ‘a limited number of areas.’ Level three is similarly vague, with the expectation that ‘in a majority of cases level 1 and level 2 devolution will meet the demands of partners and make a real difference on the ground.’ 88

In a subsequent response to Houghton’s Tackling Worklessness Review in May 2009, the DCLG and DWP confirmed a continued commitment to these plans for devolution. 89 However this response failed to spell out the specifics of the process in any further detail and there is a fear that, without a more robust timetable, there will not be sufficiently swift devolutionary progress. This is of particular concern because it would appear out of step with the development of the sub-regional agenda across the county. As the House

88 DWP (2008), ‘Raising expectations and increasing support’ 89 CLG and DWP (2009), ‘Stepping up to the challenge’ We Can Work It Out 49

of Commons Work and Pensions Select Committee concluded, ‘… DWP has not thought through sufficiently rigorously how the devolution of delivery to prime contractors will fit with the trend towards sub-regional partnerships of local authorities and other players in the employability field’.90

90 Houses of Parliament (2009), ‘Work and Pensions Committee: DWP’s Commissioning Strategy and the Flexible New Deal’ 50 We Can Work It Out

3 Integrating employment and skills governance

The previous chapter has outlined the major changes the Government has planned for the employment and skills system and has highlighted the criticisms of each of the specific policy areas. This chapter sets out proposals for how these problems might be overcome and suggests a new, streamlined and integrated model of governance for the employment and skills system.

Defining the right spatial level to integrate

Unemployment and worklessness are multi-dimensional problems that affect different populations and geographic areas in vastly different ways. This complexity was described in Chapter one, which identified numerous distinct groups of unemployed people with diverse needs, as well as varying types of employment and skills problems throughout the country.

While efforts to reduce worklessness have been effective in recent years in some parts of the UK, there remain areas of extremely high unemployment, where more than half of the residents claim benefits. Local variations have worsened in the recession, with job losses, vacancy- to-jobseeker ratios, and NEET rates jumping much higher in some areas than in others. An insufficiently flexible approach to worklessness has left some behind in the past and recession has deepened regional and local disparities.

Some areas may need to focus on a lingering long-term workless population, while others demand support for white-collar workers who are recently unemployed. Some localities may be faced with a growing NEET problem, while others have rising rates of incapacity or lone parent benefit claimants. Some places may be more suited to stimulating growth in particular sectors, while others may focus apprenticeship and work experience offerings to address local or sectoral skill shortages.

A very localised, indeed personalised, approach to employment and skills is vital and choosing the ‘right’ spatial level to make strategic decisions is not easy. “Functional economic areas” as they are known – the places people live, We Can Work It Out 51

work, travel and shop – are often smaller than regional boundaries and too big for districts.

‘Travel-to-learn’ and ‘travel-to-work patterns’, for example, tend to follow sub-regional geography. Only 20% of Newcastle College’s intake comes from the City of Newcastle authority area and Manchester College of Arts and Technology recruits from every borough in Greater Manchester.91

Although ‘fuzzy’, markets for labour, goods and services are sub-regional in nature and industrial clusters, economic performance, and commuter transport networks do not match regional boundaries.92 Moreover, these areas develop particular characteristics related to skills, environment, and proximity to major transport hubs, which makes them especially attractive to particular economic sectors and investors who base their decisions on area characteristics and geographical competitive advantage.93

There is therefore a compelling case for a collaborative sub-regional approach to strategic employment and skills policy. Of course a pragmatic approach should be adopted, which ensures administrative coherence, but councils must look beyond their own borders far more. Partnership between local authorities sub-regionally and devolution to this spatial tier has been a stated policy intention of central government over recent years, particularly following the SNR in 2007.

Many areas across the country have signed Multi-Area Agreements (MAAs), where sub-regional partnerships have negotiated new freedoms and flexibilities from Whitehall departments to deliver outcomes. The Government has also gone down the path of legislating for new, more formal, sub-regional arrangements. This will allow for the creation of new statutory bodies such as Economic Prosperity Boards (EPBs) and Employment and Skills Boards.

The Conservative Party has also stated that, if elected, they intend to ‘give local authorities the power to come together to establish new enterprise partnerships that truly reflect economic divisions’ and are open to ‘building

91 Fletcher and Perry (2008), CfBT, ‘By Accident or Design: is our system of post-16 provision fit for purpose?’ 92 LGA (2007), ‘Prosperous communities II: vive la dévolution!’ 93 CLG (2008), ‘Planning and Optimal Geographical Levels for Economic Decision-Making - the Subregional Role’ 52 We Can Work It Out

on existing partnership arrangements where appropriate’.94

Both central and local government must put aside institutional self-interest and ensure that strategic decision-making takes place at the right spatial level. Where local authorities have evidence to indicate that a ‘cluster’ approach at the sub-regional spatial tier is required they must build collaborative partnerships.

We recommend that local authorities, working together where appropriate, should take the lead on employment and skills policy and this should influence regional decisions, rather than vice versa. This should be built on a firm evidence base of functional economic geography.

Integration within the skills system

The transfer of funding and responsibilities of pre-19 education and skills provision will help bring greater coherence, but there are fears that the new system will remain unnecessarily complicated and disjointed. As the previous chapter highlighted, LSC successor bodies – the YPLA and NAS – will still exercise a number of functions. The number of these agencies is perhaps symptomatic of the complexities involved, but they undermine attempts to build a more integrated and sophisticated system.

We recommend that the YPLA is phased out, with any necessary national functions consolidated into the UK Commission for Employment and Skills, so that funding for 16-19 education and skills provision will go directly to local authorities.

The Government’s plans to have a complex national funding formula, rather than block grant, could limit the ability of the local authority to target funding in a sufficiently locally responsive way. Therefore:

We recommend that the local authority is made the direct funding agency, providing greater clarity and reducing bureaucracy.

Although a full devolution of 16-19 funding to local authorities would present real administrative challenges to councils, institutional convenience should

94 Bob Neill MP, ‘Breaking the Regional Straightjacket’ by Shadow Minister for Local Government , in Hope (ed.) (2009), Cities, sub-regions and local alliances We Can Work It Out 53

not be a primary concern. Rather the focus should be on how best to serve young learners and ensure that money is targeted in a more effective way.

Under Government plans the YPLA will retain capital funding, making decisions as to how capital expenditure can enhance the commissioning decisions of local authorities. Given that local authorities will be under a duty to provide places as the education leaving age increases, it seems inconsistent that local authorities have been given accountability without an important lever of control. The same is true with apprenticeships.

We recommend that the NAS role is devolved to local government, so that councils have the control to deliver on the duties they are to be given.

It is unclear how the national and regional focused infrastructure of the NAS, even with a ‘local presence’, will integrate tidily with local government apprenticeship arrangements. It seems inconsistent to operate at the regional spatial level when – as central government itself acknowledges – economies tend to be sub-regional in nature.

Moreover, a lack of spatial alignment between pre-19 and post-19 skills continues further dislocation in the skills system. With the SFA operating regionally, rather than sub-regionally, there is danger that there will be insufficient strategic co-ordination. This is of particular concern given the need for targeted support for the 16-24 year old NEET group, which straddles both systems.

We recommend that the SFA should be phased-out and powers and funding devolved, on a case-by-case basis, to sub-regional local authority partnerships.

This would help ensure a better integrated and coherent skills system and would help promote more flexible approaches where local authorities can prevent sharp cut-offs in provision.

The Conservative Party’s Policy Green Paper, ‘Building Skills, Transforming Lives: A training and apprenticeship revolution’, set out the Opposition’s vision for the skills system. The paper advocates a ‘streamlined funding model’ in which ‘there will be no need for agencies such as the new Young 54 We Can Work It Out

People’s Learning Agency’ and FE colleges will operate more autonomously.95 It is critical of the Government’s plans to give local authorities greater control of FE by devolving a ‘commissioning function’, stating that “FE colleges thrived when they were given autonomy through incorporation in 1993; now, they will have to deal with local authority oversight once more”.96 Instead they propose a new national body – the FEFCE (Further Education Funding Council for England) – to be a single point of contact for FE providers and for funding to follow learners.97

We agree that a streamlined model is needed and that people should be given greater control over their learning options, but we disagree that local democratic oversight is somehow burdensome. Rather to meet employment and skills challenges we believe that local authorities have a vitally important strategic role to play. Local authorities can play a key role in linking skills provision with broader policy objectives such as employment policy, business engagement, transport, planning, Connexions, schools, and adult and children’s services.

We recommend that the Conservative Party reconsiders their policy of creating a national body and removing the local authority FE commissioning function for 14-19 year olds.

Personalisation and nudge

The key question for the Government and Opposition is how do we increase both the volume and level of skills in the workforce? We fear that Government’s skills policy remains too top-down and bureaucratic and current Conservative Party proposals would fail to secure the strategic skills that are needed for growth and jobs.

We need to combine greater individual choice in up-skilling with a degree of local democratic strategic control – empowering people and places to prosper.

Adult “skills accounts” are perhaps the best vehicle through which this can be achieved and this section of the report outlines how such a model could

95 Conservative Party (2008), Building Skills, Transforming Lives: A training and apprenticeship revolution’, Opportunity Agenda, Policy Green Paper No.7, 96 ibid 97 ibid We Can Work It Out 55

work. Through “skills accounts” government is able to provide entitlements to meet the full cost or subsidise part of the cost of courses for individuals to improve their skills.

Public funding must focus on those with the lowest skills, who face the greatest disadvantage and often exclusion from the labour market, such as entitlements to full funding for basic skills and Level 2 qualifications. But, we need to encourage greater investment by individuals themselves in achieving higher level vocational skills. The difficulty is that up-front training costs can be prohibitively expensive and so the impact of co-investment models – where the state and individual meet the costs directly – is limited.

Career Development Loans (CDLs) are already available to individuals, but they require the repayment risk to be shouldered by the individual. This is in contrast to Student Loans, where repayment to The Student Loans Company only takes place when an individual’s salary reaches a certain threshold. Below we outline how CDLs and Student Loans work and discuss how a new mechanism could be designed to provide greater training opportunities for adult vocational skills.

Career Development Loans

These deferred repayment bank loans are run in partnership with Barclays, the Co-operative Bank and the Royal Bank of Scotland. The individual then has to approach a participating bank, who will usually take between six weeks and three months to process the application, and may borrow an amount between £300 and £10,000. If the application is successful, the bank will send a credit agreement, which both the learner and the learning provider need to sign.

To apply for a CDL an individual needs to inquire as to whether their learning provider is on the Professional and Career Development Loan Register of learning providers (or willing to be registered). The register is there only to help with administration of the loans, rather than to guarantee a learning provider’s quality or financial stability.

CDLs may be used for courses lasting up to two years (or three years if it includes a work experience placement). The course does not necessarily have to lead to a qualification, but it must help further an 56 We Can Work It Out

individual’s career in some way. To be eligible, an individual needs to be 18 or over and intending to work in the UK, the EU or the EEA when the course finishes. The ultimate decision on CDL applications remain with the participating bank and depends on an individual meeting their specific lending criteria.

The LSC pays the interest on the loan for the duration of the course, and the learner pays off the loan one month after finishing the course at the rate which was fixed when the loan was taken out.

Interest rates on the loans are set to be competitive with other ‘unsecured’ personal loans that are commercially available. Currently, banks offer Professional and Career Development Loans at a reduced customer rate of 9.9 per cent per annum, equivalent to a typical annual percentage rate of 5-6 per cent over the lifetime of the loan, although interest rates may vary between banks.

The Student Loan System

The current Student Loans system was implemented following the publication of the 2003 White Paper ‘The Future of Higher Education’, which detailed how students would have more responsibility for paying for the costs of their tuition. The rationale behind this white paper was that higher education had still not extended far enough to support those from disadvantaged backgrounds; that investment in academic knowledge could lead to significant economic growth; and that the system should be altered so that individual students help offset government contributions to higher education.

This new funding system abolished up-front tuition fees for all students and allowed universities to secure a contribution of between £0 and £3,000 per year to the cost of each course – to be paid back to the Student Loans Company by the individual when they are in work, linked to their ability to pay.

For the majority of students, a loan comprises of the tuition fee loan plus a maintenance loan, and will be paid directly at the start of each academic term. Every individual partaking in an eligible course We Can Work It Out 57

qualifies for 72 per cent of the maximum loan, regardless of income, and the rest is income-assessed. These loans accrue interest at the rate of inflation, which means that the amount repaid has the same value as the amount borrowed.

The repayment of loans is achieved through the tax system via income- contingent repayments and only begins after the student has left higher education and is earning over £15,000, tapering the repayment obligation according to the gross income of the account holder. This is distinct from the previous mortgage-style scheme in which the monthly repayments were fixed and account holders whose incomes exceeded the deferment threshold were required to repay the entire instalment each month.

The Student Loans Company

The body responsible for administering this financial system is the Student Loans Company (SLC), a UK public sector organisation established to provide financial services, in terms of loans and grants, to over one million students annually.

The primary roles of the SLC are to deliver financial support to eligible students pursuing higher education; pay to higher education institutions the public contribution towards tuition fees; supply information needed by HM Revenue & Customs to ensure repayments are collected on time from all those due to repay under the Income Contingent Repayment Loan Scheme; and manage the direct collection of repayments for loans granted under the former Mortgage Style Loan Scheme.

They also undertake specific tasks for individual devolved administrations such as payment of Education Maintenance Allowances. Types of help for new full-time higher education students provided by the SLC include tuition fee loans to cover the full cost of tuition fees; maintenance loans to cover the cost of living expenses; grants to cover the cost of living expenses; bursaries and scholarships from universities and colleges; and extra financial help for students with dependants, disabilities or learning difficulties. 58 We Can Work It Out

The Government should consider adopting a model for funding adult vocational skills similar to Student Loans, in which loans are provided and repaid through automatic deduction from the individual’s salary once it reaches a certain threshold by the Student Loans Company. Therefore:

We recommend that the government undertakes a feasibility study at the earliest possible opportunity into ‘Lifelong Learner Loans’, with detailed modelling to assess the loan amounts that could be offered for different qualifications based on the social and economic benefits that they are likely to bring.

If there is to be greater parity of esteem between academic and vocational qualifications, the introduction of such a system would be a good place to start. Moreover, such reforms would empower individuals as customers to drive demand and improve the quality and performance of adult skills training providers.

The Government recently announced revitalised ‘skills accounts’ for every learner to make them aware of their training entitlements and a threefold expansion in the places they can be used.98 The Conservative Party also plans to introduce ‘Lifelong Learning Accounts’ if elected, which would allow individuals to access money for training. The UKCES has also proposed ‘Personal Learner Accounts’.99 We welcome these proposals and all systems would be able to form the delivery mechanism for our proposed Lifelong Learner Loans.

Both central and local government have important roles to play in ensuring the success of such a system. They will need to:

•• Empower individuals to make the right choices about the best training for their circumstances through clear information, advice and guidance.

•• Encourage employers to ‘buy in’ to skills accounts and contribute to the training of their employees. This could involve offering financial incentives through the account system for employers to up-skill their workforce, such as through match-funding.

98 BIS (2009), ‘Skills for Growth: The national skills strategy’ 99 UKCES (2009), ‘Towards Ambition 20:20: Skills, jobs, growth’ We Can Work It Out 59

•• Provide the funding needed to meet their skills ambitions.

•• Weight different training options to direct people towards skills that are most economically valuable and therefore most likely to be beneficial to both the economy and the individual. While there should be more relative freedom of choice, we believe it is possible for individuals to be ‘nudged’ towards particular training options of high local economic priority through thoughtful choice architecture and financial incentives, such as variable levels of public subsidy from course to course.

•• Prevent fraud and ensure minimum standards by accrediting training providers.

Such a system would allow a more personalised and learner-led approach – at the same time as stimulating more strategic skills training, shaped by current and future skills needs.100 Though some functions may be best exercised nationally, such as standardised online accounts, many would sit best locally. For example, the financial weighting of different training options should be decided by local authorities based on the current and future needs of their sub-regional economy. Councils may also wish to introduce innovative payment methods to support a more personalised, convenient and learner- driven approach to training, following a similar model to that developed by Kent County Council for social care services.

Case Study: Kent Card

Kent County Council has introduced a new payment method for people receiving social care services called the Kent Card. The card was developed in partnership with the Royal Bank of Scotland and is targeted at organisations that have a requirement to make Direct Payments to individuals. It works like a debit card by enabling clients to pay for services using funds supplied by KCC. The initiative allows a more secure and convenient way of receiving direct payments for community support and assistance, while enabling greater control for service users over their own lives. The scheme also aims to reduce the administrative burden both for Council’s staff in processing direct payments and individuals in managing their direct payment.

100 Chapter 5 considers in depth the new economic and skills activism that local authorities should take on. 60 We Can Work It Out

The card is an easy way to pay for service provision, operating as a chip-and- pin Visa card which may be used to pay for up to £2,500 worth of services at a time either face-to-face, over the internet or via telephone. The user gets a monthly statement showing all payments made using the card, which can be accessed securely online. If the company the user wants to use does not accept the Kent Card, KCC tries to encourage them to sign up to accept Visa payments in the future. Key to this was a time limited offer of financial support to encourage providers to sign up to accept the Kent Card.101

Integrating the employment and skills system(s)

Linking up employment and skills policy is crucial if a more integrated approach is to be achieved. This section considers a vehicle for realising this goal, before we go on to consider how welfare-to-work and other policy strands must also be integrated to achieve a more holistic and effective governance structure.

Employment and Skills Boards (ESBs) – partnerships that join-up the employment and skills agenda in sub-regions – have already made important progress in making training more relevant to the needs of the labour market. The Leitch Review strongly advocated the development of ESBs, and the Government’s SNR and the Lyons Inquiry both supported the ESB concept, but the development of ESBs in recent years has been patchy and different areas are at different stages in their ESB development.102

Evidence suggests that those areas that have developed effective ESBs can add important value, providing an important mechanism to simplify and streamline their employment and skills activity.103

By being market driven they are an important mechanism for identifying the skills needs of business and should be at the heart of a network for employer engagement. Matching the supply of available labour to emerging employment opportunities requires a degree of local knowledge, coordination and networking with the business community that only local agencies can deliver. Moreover, bringing together local business leaders and senior

101 SEIEP (2008), ‘Showcasing Good Practice: New Kent Card’ 102 CFE (2008), ‘Employment and skills boards: Current and potential role’ 103 ibid We Can Work It Out 61

public sector representatives – both in devising strategy and in delivering on the ground – can help secure ‘buy-in’ to the agenda. We recognise that many local authorities have a long way to go in strengthening employer engagement, but many areas have built strong links with the business community.

Failure to adequately engage businesses will seriously undermine the ability of local authorities to establish an effective employment and skills system. Building firm relations with employers is crucial to joining up strategy and front-line delivery, breaking down barriers of language and culture, making training more relevant to the needs of the labour market, providing challenge to the public sector and promoting innovation.

Moreover, local businesses, are the key to providing the job opportunities, the working environment and the support and training needed to ensure sustainable employment for local citizens.

It should also be recognised that different local authorities operate under different circumstances and that sub-regional governance arrangements must be tailored to meet these varying contexts. However:

We recommend that strong partnership is needed to drive the employment and skills agenda and recommend that local authorities drive forward the ESB agenda by dedicating sufficient resources to support them and also ensuring high level participation.

This would help ensure that all ESBs can match the success of the more established ESBs.

We recommend that central government grants statutory status to Employment and Skills Boards at the earliest opportunity to those sub- regions that request it– through a process of negotiation – so that greater powers and responsibilities for employment and skills policy can more easily rest at the sub-regional tier.

Without central government putting real and meaningful employment and skills powers “on the table”, there is a danger that local authorities will not have sufficient incentive to take the sub-regional agenda to the next stage.

62 We Can Work It Out

Integrating welfare-to-work

Spatial integration of FND is vital and attention must also be paid to integration within the welfare system itself. Although FND replaces or consolidates several programmes, some have still criticised the welfare system for being too fragmented and insufficiently tailored to individual needs and those with multiple barriers to work. The Conservative Party argues that there are still over 20 welfare-to-work programmes and criticise the way that the system centrally streams people according to the benefits they claim, rather than defining them by the employment barriers they face.104

They have announced that, if elected, they will introduce a single Work Programme, to replace all existing programmes – including FND – in a new integrated model. There have also been welcome steps by the Government in this direction. The Personalised Employment Programme is based on the principles of a single work programme and pilots will be launched in March 2011.105

We welcome these moves, but urge Ministers to drive them forward hand- in-hand with devolution. Only then will a more locally responsive, integrated effective employment and skills system be achieved.

We recommend that central and local government and the supply base of independent providers work together to implement a single and better integrated programme for welfare-to-work, with the end goal of this being led by partnerships of local authorities operating sub-regionally.

While DWP’s three levels of devolution is a welcome routeway, the commitment and skill of all parties will determine the pace of travel.

Local authority input into DWP contracting is strengthening but remains patchy. As a matter of course, localisation should be made part of the specifications for all employment programmes and local authorities in all areas should influence key issues such as job outcome targets, bidder evaluation criteria and how DWP’s ‘national spine’ programmes can be locally tailored and connect with locally commissioned ‘wrap around’ services.. This is laid out in DWP’s Level 1 of devolution.

104 Conservative Party (2009), ‘Get Britain Working’ 105 Centre for Economic Inclusion (2009), ‘Will a single Work Programme work?’ by Dave Simmonds in Working brief, Issue 208, October 209. We Can Work It Out 63

We recommend that it is rolled out across the country so that all areas use the chance to show local leadership over provision in their locality.

DWP’s Level 2 of devolution is a ‘co-commissioning’ model, which would allow local and sub-regional partnerships to help develop solutions more appropriate to local circumstances, better align funding streams and possibly develop joint funding arrangements. This is a welcome step and is already providing a constructive challenge both to central and local government. It provides a real opportunity to align at a more local level the various funding streams and programmes which focus on employment, skills and individual support more closely with DWP’s commissioned provision, including, where applicable, resources from the Working Neighbourhoods Fund.

While local authorities may broadly welcome the opportunity to help influence the FND negotiating process by sharing commissioning with DWP, there are concerns that this model may be unnecessarily over-complicated.

“It [co-commissioning] will be far more intensive because we will have to talk to sub-regional or local partnerships and DWP nationally. This will drive up costs in the contracting process and there will inevitably be tensions between local government and central government. Of course don’t pander to the convenience of the provider base, but it would be better for the tax payer if we had it one way or the other [sub-regional commissioning or national commissioning].” Private sector prime contractor

Though a logical conclusion might be to remove Level 2 and move straight to Level 3, where the commissioning, funding and contract management arrangements are devolved to a local partner or joint commissioning body, we recognise that such a devolutionary leap may be prohibitively challenging for many areas to achieve and that a transition phase is required. However:

We recommend that Level 2 arrangements should be seen as a stepping stone to Level 3 devolution, rather than an end in itself. Local authorities should not shy away from responsibilities that should ultimately rest with them, but many have a long journey to get to this stage.

It will be important for local authorities to make a success of Level 2 devolution. The first FND contracts to implement a Level 2 approach are 64 We Can Work It Out

currently in procurement: in Merseyside, local government is funding earlier access to FND for people living in particular wards; while in the North East, local authorities have incorporated a project to create public sector work placements. Level 2 co-commissioning could, for example, bring together funding from DWP, local authorities and other local agencies to ensure that people with more complex needs, eg health, skills, housing, family support, can receive the particular support they need. We also encourage local authorities to build stronger relationships with their FND prime contractors and other local independent providers, so that their insight and experience informs the development of local strategies.

In our new proposed devolved model where local authorities and sub-regional groupings of authorities commission a single and integrated programme of welfare-to-work, we would expect to see a level playing field for providers, be they from Jobcentre Plus or the private or third sector. Commissioning should be done on a payment-by-results basis that could incentivise targeting at priority groups for a local area, such as the hardest to reach, depending on what the priority for the area is, as determined by the local economic development plan or the LAAs.

Integrating employment and skills with other policy strands

Though integrating better employment and skills policy is a necessity, it is not enough. Local authorities must not replace a centralised and siloed approach to employment and skills policy with their own silo. The employment and skills agenda must be integrated with the wider agenda for each place.

Chapter 4 considers the complex interplay between the myriad of policy areas and agencies. Linking these strands is perhaps most important for those groups identified as at particular risk in the recession and helping these vulnerable groups often requires intensive and personalised support.

To ensure that the eco-system of agencies and actors works in a coordinated way to offer ‘wraparound’ support and services, a place-based approach is required. Moreover, with tightening public spending it will be vital to prevent duplication and to align funding streams to ensure an ‘invest to save’ approach is adopted. Possessing a myriad of policy levers, local intelligence and sitting at the heart of local partnerships, councils are uniquely positioned to lead on such activity and rise to this challenge. We Can Work It Out 65

Particular consideration must be given to the integration of employment and skills policy with wider economic policy. Following the SNR greater responsibility for economic development is being given to local government. Meeting the current and future skills needs of the economy and boosting employment are essential pre-requisites of economic success and local authorities should be given the lead in this policy area. In Chapter 5 we consider how local authorities can adopt a more activist approach to economic policy to meet their employment and skills challenges.

Conclusions

Devolution to local authorities is clearly on the radar of central government policymakers and some early steps have been made by them towards this goal. The recent changes to employment and skills policy by central government demonstrates some recognition of the local variation in skills and jobs needs, as well as of the importance of more flexible, localised approaches. The result has been the launch of several programmes piloting new devolution arrangements, including the Working Neighbourhoods Fund and the City Strategy Pathfinders.

Although these programmes have devolved some powers to local authorities in a few areas of the country, such piecemeal reforms have failed to empower a full local response. There is a danger that half-hearted devolution could add to existing complexity, with local authorities and partners handed accountability but little genuine power. Moreover, a system of blurred and overlapping responsibility between central and local government could result in a system that is sub-optimal at best and, at worst, destined to fail generations of citizens. Such a failing would not be one of devolved governance, but a failing of muddled and piecemeal devolution in what remains a stubbornly top-down and centralised system.

With a large number of different agencies operating at different spatial tiers and across localities – often focusing on their own narrow institutional goals – there is far too much complexity and dislocation in the employment and skills system. This impacts negatively on delivery and is costly. With public spending coming under pressure such apparatus is unsustainable.

Many local authorities have a great deal of work to do before they would be in a position to take on devolved responsibilities. In particular, they would 66 We Can Work It Out

have to build new skills and capacity, especially around their commissioning, contract negotiation and performance management. In addition, they would have to become more outward facing, strengthening relationships with multiple stake-holders.

However, a more devolved, local authority led, employment and skills governance would be superior for a number of reasons. First, there is potential for it to cut costs by streamlining the employment and skills system architecture. Second, they are uniquely positioned to orchestrate partnership between the public, private, and voluntary-sector, as well as with employers, schools, and colleges. Third, it will improve spatial integration, allowing a far more joined-up, co-ordinated and ultimately effective approach to employment and skills policy based on the needs of local communities and individuals. Strategic decisions need to be taken by representatives who best understand the needs of their particular place, at a level far closer to the citizen.

Importantly, it will also strengthen democratic accountability. As the public finances come under pressure, it is arguably more important than ever that citizens - at the individual and community level – are engaged in an honest debate about budgetary and service choices and are able to shape them.

We hope that central government would be willing to devolve employment and skills powers through a process of negotiation, such as through Multi- Area Agreements. However, we believe that safeguards should be put in place for when local authorities feel that they are not receiving sufficient cooperation from Whitehall. Therefore:

We recommend that councils should have a right to appeal against departmental decisions when local requests are ignored. A third party and impartial adjudicator, such as the most appropriate parliamentary select committee, should be enrolled in such cases to bypass institutional and cultural loyalties.

A framework of fully transparent assessment criteria could then be drawn up and evidence taken from both departments and the local authorities calling for devolved powers so that an informed decision could be reached.

For example, if DWP retains control of the FND three levels of devolution, then it is important that they are not the only ‘judge and jury’ when it comes to progression onto each stage. Such an approach leaves them open to the We Can Work It Out 67

charge that their decisions are rooted in institutional protectionism rather than operational merit. Therefore, local authorities would have a right to appeal a decision with the DWP Select Committee who would then arrive at a final judgment.

This goes to the heart of the concept of ‘earned autonomy’ for local government, which risks creating a mindset within Whitehall that is resistant to devolution. The premise that ‘autonomy has to be earned’ may serve to perpetuate existing centralised arrangements. Given the commitment of the Government to progressive devolution, there should be a shift in Whitehall’s mindset, where this top-down attitude should be mirrored by a counterpoising attitude of ‘earned centralisation’.106

Many local authorities will have to “up their game” if they want to take on new powers. However, the case for a localist approach to employment and skills is compelling and both councils and central government must rise to the challenge of making this a reality.

106 See Hope and Leslie (2009), ‘Challenging perspectives: Improving Whitehall’s Spatial Awareness’ 68 We Can Work It Out

4 Building the ecosystem around the individual

As we have seen, transforming the Government’s approach to further education and skills provision is crucial. However, it only goes so far. The broader role of the local public sector in getting people into jobs and keeping them there is equally challenging.

The barriers people face in getting into work can be numerous and complex and can require intensive, multi-faceted interventions. The urgency of rising unemployment demands a bolder approach that accelerates progress towards more personalised and holistic support. It is at local level that this support can best be co-ordinated and it is by harnessing the capacity of the best providers that we can get people the support they need.

Moreover, as we move towards an era driven by the ‘Total Place’ approach that tries to break down silos in public spending and deliver more efficient, citizen-focused services, reducing unemployment among the hardest to reach groups has substantial implications for broader public service expenditure.

More than this, however, it is our moral duty to ensure this recession does not leave the legacy of ruined lives, wasted potential and needless poverty that previous recessions have spawned.

Personalisation: The pre-recession approach

Prior to the recession the Government had increasingly begun to focus on the harder to reach, having made some relative progress at getting those nearest the labour market back into work. In order to reach its ambition of an 80% employment rate, it identified particular groups requiring greater attention; people without qualifications, older workers, lone parents, people on incapacity benefit, and people who had been on income support for more than a year.107

While acknowledging that there would be some people for whom work was never going to be possible, the intention was to try and get those that could become work-ready onto a journey to work.108

107 Freud (2007), ‘Reducing dependency, increasing opportunity: options for the future of welfare to work’ 108 Gregg (2008), ‘Realising potential: A vision for personalised conditionality and support’ We Can Work It Out 69

This approach increasingly realised the importance of tailoring support around the individual, and looking at the wider obstacles to getting people back into work. There was growing recognition that those furthest from the labour market often had multiple disadvantages and needed more tailored, holistic approaches than were being offered by existing support. Hence the Freud Review was commissioned to look at alternative approaches to reach those with the most complex and entrenched problems who remained resolutely out of work.

The review recognised the limits of existing systematised provision and recommended that the private and the third sector be bought in on a payment by outcomes approach to deal with some of the hardest to reach clients through individually tailored programmes.

‘While there is no conclusive evidence that the private sector outperforms the public sector on current programmes, there are clear potential gains from contesting services, bringing in innovation with a given skill set, and from the potential to engage with groups who are often beyond the reach of the welfare state.’109

Thus the Flexible New Deal was created to promote more tailored, responsive approaches to help individuals back into work and to bring other providers into the market. However, just as this approach was shifting, the economic crisis hit, and the scale and profile of claimants changed drastically. The recession has created a new dimension to unemployment as shown in Chapter One.

Responding to recent changes in claimant demography

It is crucial that local authorities, independent providers and Jobcentre Plus do everything they can to respond to this new challenge, and some good practice is highlighted in the box below. The arrival into the claimant community of professionals such as architects and executives provides new challenges, but many local partnerships have shown an impressive speed and flexibility in reacting to this new demography and have provided bespoke training, support and guidance to them.

109 Freud (2007), ‘Reducing dependency, increasing opportunity: options for the future of welfare to work’ 70 We Can Work It Out

CASE STUDY

St Albans & District LSP: Executive Forum 2009

St Albans has been hit severely by the recession; unemployment in the district has risen by 150% since April 2008. Unemployment amongst senior managers, executives and professional people, who had not historically benefited from help and resources, were of particular concern to the local authority.

A special high quality service – the St Albans Executive Forum - was rapidly created, working with Jobcentre Plus, the Centre of Voluntary Service, Oaklands College and others, to deliver information, tools, resources and support to help professional people hit by unemployment and redundancy to find new jobs.

The Forum was a six-week programme of help, services and advice for senior managers and professionals hit by unemployment. Local businesses have been keen to support the Executive Forum and have provided venues and facilities free of charge.

CASE STUDY

Sutton: Executive Plus

The London Borough of Sutton’s economic make-up means that the recession is experienced very differently by residents in different parts of the borough. There has been high percentage increase in unemployment (as much as 229%) in non-traditional wards.

While the sort of assistance required in low income areas is fairly well understood, there was less experience across the Borough of working with jobless professional people since they have been few in number in recent years and were generally able to manage without their council’s help.

In response, Sutton set up of a series of free courses targeted at highly-skilled executives and professionals, following a marked rise in unemployment in its more affluent areas. Many of those who attended are from the hard-hit financial and construction industries. We Can Work It Out 71

The programme offers unemployed residents three days of topics that include CV creation, debt management, retraining, volunteering, finding and applying for a new job.

The initiative is a partnership between the London Borough of Sutton, Citizens Advice Bureau, Sutton Chamber, Jobcentre Plus, the Holiday Inn, Carshalton College and Sutton College of Learning for Adults (SCOLA).

Participants have included architects, systems analysts, senior public sector managers, retail area managers, fashion designers, landscape architects, legal executives, company directors and project managers.

The Flexible New Deal

While responding to rapid and unusual new inflows into employment support, it is crucial that government maintains its focus on those furthest from the labour market. The potential transformative effect on lives as well as the broader consequences for public spending on costly benefits is substantial.

Government’s increasingly personalised approach to tackling unemployment over the last few years has been the right one. But the architecture was designed before the recession when record employment meant that the focus of reform was on those furthest from the labour market, who faced multiple and complex barriers to getting back into work. The expectations on FND providers are rising as competition grows for jobs and as the number of jobless continues to rise.

Keeping up pressure on supporting those furthest from the labour market, as the FND was designed to do, is crucial. Failure to tackle more entrenched worklessness and benefit dependency will mean we will continue to see the maintenance of intergenerational cycles of worklessness, with the resultant costs to society, the economy and the individuals and families.

Some aspects of the FND model, notably the payment mechanism and national government expectations around job-outcome targets, were designed before the recession. Yet as the number of job-seekers swells and the vacancy to job-seeker ratio gets worse, it becomes even harder to get those furthest from the labour market back into work. Some essential 72 We Can Work It Out

changes were made during the procurement phase and it will be important to use the flexibility within FND contracts during the contract management phase.. 110

Figure 18 The DWP customer journey

Under the job-seekers regime, claimants are dealt with by Jobcentre Plus for the first 12 months of their claim. Over this period there will be increasing requirements on jobseekers. At the end of 12 months, responsibility for claimants will be referred to contractors in the private or voluntary sector.

Jobcentre Plus Personalised support from specialist providers Fast tracked customers

Escalating conditionality

New customer Job Stage 1 Stage 2 Stage 3 Stage 4

0 months 3 months 6 months 12 months

Customer diagnosis Directed Self-help ‘The gateway’ ‘Flexible New Deal’ job search

The role of place in personalisation

We would argue that a place-based approach is essential to enable an effective response to the recession. It is clear that unemployment and worklessness cannot be tackled in isolation, or viewed simply as a deficit of jobs to be tackled by benefits administrators and employment advisors. Areas most vulnerable to high levels of unemployment tend to also suffer from the worst rates of child poverty, poor housing, teenage pregnancy, crime and disorder, health problems, school attendance, and environmental

110 ‘DWP 2008, Raising Expectaions and increasing support: reforming welfare for the future We Can Work It Out 73

problems.111 Worklessness is not an isolated problem in many communities – it is one that is embedded in a broader set of social problems and requires tailored, holistic solutions.

Not only are workless areas plagued with numerous social problems but workless people experience multiple individual barriers to getting back to work. Many workless individuals lack the skills, experience, confidence and know-how to secure sustainable jobs. Beyond their skills needs, they also face physical barriers – they live in areas of concentrated deprivation and worklessness, isolating them from employers, transport links, and social networks to help them find jobs. Confounding this physical isolation are numerous personal and social barriers throughout their lives, including health problems and disabilities, child care obligations, and cultural and linguistic obstacles.112 There are also less tangible barriers such as low aspiration, common in the most deprived areas.113

‘We are trying to get people to be more aspirational. Its about saying to people there’s stuff out there, lets just help you to go and get it… There’s still an element of a dependency culture, so people look back to the days when [a major local industrial employer] gave you a job and the council gave you a house’ Local Authority Director of Employment

Moreover, the employment and benefits system itself is so complex and inflexible that without proper support and advice, there is little incentive to seek a pathway up and out, as people fear the insecurity which characterises low-paid work or do not believe they will be better off in work.114

While employment advice and skills training will help jobseekers to overcome some of these barriers, many individuals also require physical and mental health care, housing services, transport access, debt and benefits advice, child care provision, and other support services outside the realm of the employment and skills sector. Not only do they need access to these

111 Partners in Salford. (2009), ‘Developing working neighbourhood teams in Salford.’ and LSE (2007) ‘John Hills Ends and Means: The future roles of social housing in England’ 112 NAO (2007). ‘Helping people from workless households into work.’ 113 Social Exclusion Taskforce (2008), ‘Aspiration and attainment amongst young people in deprived communities’. 114 Freud (2007), ‘Reducing Dependency, increasing opportunity; options for the future of welfare to work’ 74 We Can Work It Out

crucial support services, but the services need to be joined up so that they work together towards a common goal of moving workless individuals into sustainable employment.

A NAO report highlighted the need to use multiple agencies to address complex barriers to work, offering a case study of a family with low-skilled parents who were out of work caring for multiple children, lived in a small house but could not move because of debt, were unaware of how to access benefits; and in need of parenting skill training and other social services. Such a family cannot be served by employment advisers alone – they need help on multiple fronts from different agencies to ensure that employment assistance is effective. These agencies must work together to provide a comprehensive, integrated support package for such individuals and families.115

There are some excellent examples of how some local authorities are taking a ‘whole family’ approach to tackling the multiple and complex needs of families.

CASE STUDY

Haringey LBC

Families into Work

The Families Into Work (FiW) project is a family focused intervention aimed at improving the life chances of 100 families in Northumberland Park - one of the most deprived parts of Haringey, currently with the highest Job Seekers Allowance claim rate in London. The project works with families (rather than individuals) to identify and provide the services they need for parents to become employed and for children to achieve success in education and develop the skills and desire to obtain work with career prospects. New services are not being provided by the project and the aim is that existing service and projects should be co-ordinated and targeted to the families on the projects; thus FiW does not duplicate existing services but seeks to facilitate better use of them.

115 NAO, (2007), ‘Helping people from workless households into work.’ We Can Work It Out 75

Joining up locally

An important result of joined up services is coordination at the strategic level so that each provider supports the work of the others. In a 2008 report, ‘The Integration Gap’, the LGA provides several examples of how joined up public services might work together to tackle worklessness:

•• Mental health service providers could work with employment and skills providers to provide support so that jobseekers aren’t held back from finding employment by depression or substance abuse problems.

•• Local transport services and child care services can be supported by local employment and training providers so that they become more conducive to working schedules and travel-to-work patterns.

•• Referrals from housing or childcare providers could incentivise GPs to provide the care necessary to move people from incapacity benefits to work.

These examples demonstrate the range of different services that play a role in creating the right support to get someone back into work.

Mapping wraparound employment services

There are a myriad of public, private and voluntary services that work at local level to address the barriers people face in workless areas, and these can form a complex web around people that can be difficult for the individual to negotiate. The Houghton Report116 calls these interlinked services ‘wraparound services’ and some of them are mapped in the diagram on the following page.

116 Houghton (2009) ‘Tackling Worklessness: A Review of the contribution and role of local authorities and partnerships’ 76 We Can Work It Out

Figure 19 Wraparound services that a jobseeker might need.

Transition Travel service Employment and Advice transport

Childcare Financial Advice

Extended Housing schools and CT

Adult Interpreting Jobseeker education Service

Basic Community skills outreach training

Social Health housing care service Adult Mental social Health care Substance abuse

Better partnership working at local level has been the pattern in public services in recent years and children’s services in particular are now becoming more integrated: Cooperation between professionals is increasing and new processes are in place for identifying needs – such as multi-agency panels, common assessment frameworks and electronic data-sharing.117

Yet at present, substantial barriers remain to the better coordination across these services. These barriers include the limitations of separate and distinct

117 Iacopini (2008), ‘Families Matter: Local Families, Local Solutions’ We Can Work It Out 77

budgets and performance frameworks, which are often directly dictated from a Whitehall department.

Barriers also exist at local level where local leadership on welfare-to-work is sometimes weak and where local agencies have not yet built up trust and ways of working together. These national and local level barriers result in insufficient momentum at local level to flex and direct services, to jointly commission services, to pool or align budgets or to take an invest-to-save approach.

The Total Place Pilots should start to identify where these barriers and restrictions lie. It is vital that the lessons learned are then implemented more broadly in the local delivery of employment and support services.

‘PSA 16 [targeted at socially excluded adults] is a very intense, difficult group to work with. To get this group back to work there is a great need for cross governmental strategies to exist but unless they can translate to cross working at a local level then it won’t work. ..We would be in favour of joint commissioning and pooled funding because we know these people at a local level and it makes sense’ Local Authority Director of Employment

We recommend that central government use the findings from the Total Place Pilots to establish where performance management frameworks or funding streams across Whitehall are restricting local partnership working and creating barriers to holistic, citizen-centred support.

Moreover, individuals are expected to fit neatly into categories which suit the public services in their segmentation, rather than the needs of the individual. Categories often cannot reflect changing circumstances or chaotic, complicated lives. Access to programmes and budgets are allocated by criteria such as age, the length of time out of work, or previous support received which suit the system for processing rather than the individual in terms of their needs.

There needs to be greater coordination of interventions based around a family or individual. This will require the pooling or, at least, aligning of budgets, and it is the local authority that can lead on this, subject to sufficient devolution from DWP. Bringing together personal health budgets with back to work plans, or care plans with skills training could have a substantial affect on success. 78 We Can Work It Out

Simplifying funding streams

One of the current barriers to integrating wraparound services into network of support for jobseekers is a complex, fragmented central government funding system. On the whole, though councils may deliver or commission employment and skills, local authorities fund little direct delivery of this activity themselves (beyond Education Services).118

‘…the councils and their partners have found responding to the different timescales, requirements and constraints of some funding streams difficult. Securing funding takes resources and monitoring, in the main, has led to a focus on outputs not outcomes. At times changes in funding arrangements have led to a degree of disruption and delays in implementation as councils and their partners have taken time to put in place new governance frameworks and decide on what should be commissioned.’119

Currently, worklessness is being tackled through multiple initiatives coming out of different central government departments, each with its own funding stream. One study in 2007 found that funding for worklessness initiatives in London came from the DWP, DfES, DCLG, and HMT. Between them, they funded at least 18 national initiatives and 21 pathfinder projects aimed at tackling worklessness.120

Meanwhile, overlapping central programmes face further competition from regional and local authority-led programmes. Indeed, seven out of ten local authorities in Greater Manchester provide unemployment programmes that compete with Jobcentre Plus and the LSC because they believe that the national programmes are inadequate. Each national, regional, and local funding stream comes with its own accountability system, making the pooling of resources and coordination of efforts nearly impossible.121

A study mapping worklessness initiatives and funding streams in the Bradford found that there were nearly 50 projects delivered by more than 30 organisations. The system is fragmented both at the delivery and funding

118 Audit Commission (2009), ‘Regeneration Worklessness: West Midlands Metropolitan Councils’ 119 Audit Commission (2009), ‘Regeneration Worklessness: West Midlands Metropolitan Councils’ 120 Centre for Economic and Social Inclusion (2007), ‘Tackling worklessness and child poverty.’ 121 Learning and Skills Improvement Service. (2009), ‘Fundamental simplification of employment and skills services – UKCES consultation.’ We Can Work It Out 79

levels, with 13 projects delivered by public providers, 14 by private, and 21 by the voluntary and community sector. The European Social Fund (ESF) is the main funding source for 15 of the area’s worklessness projects, Jobcentre Plus funds 12, Local Enterprise Growth Initiative (LEGI) funds 5. Some initiatives, like the Fair Cities Programme, are co-funded by the ESF and Jobcentre Plus. In all, funding came from 25 different funding sources. Further complicating the situation, the money is often channelled from a funding body to a separate managing agent before reaching the delivery agent.122

We recommend that attempts should also be made locally to streamline initiatives. As part of the Local Economic Assessment local authorities themselves should undertake an analysis of local worklessness initiatives with a view to streamlining them by identifying duplication and potential savings.

Reaching out

Many areas have piloted one-stop-shop approaches. Indeed Jobcentre Plus itself was redesigned in 1998 to become, in essence, a one-stop- shop for benefits and employment information. However, there is a greater sophistication required for dealing with wraparound services. Job Centres are already evolving into a more universal point of access. They could become even broader gateways for local services – with access to advice on other services outside the DWP remit, such as council tax or housing advice, referrals to health specialists or legal advice.

“We are already extending the service to people facing redundancy, to stay-at-home mums and carers who are thinking about returning to work. It’s not a huge jump to see it extending the other way too – with the introduction of the Adult Advancement and Careers Service we could see a service that runs alongside people at every stage in their working lives… as a first port of call everyone should be able to contact the Jobcentre and get something of real value to them.”123

Local authorities should be much more imaginative about how job brokerage happens. Jobcentre Plus currently does job brokerage from a deficit

122 Policy Research Institute (2007), ‘Mapping of worklessness initiatives for City of Bradford Metropolitan District Council.’ 123 Jim Knight MP, Minister of State for Employment, speech to Work Foundation, 2 December 2009 80 We Can Work It Out

model perspective – namely that the client doesn’t have a job so it is their responsibility try to help that individual find one. But job brokerage should also be closely related to career development, information and guidance, and additional support at key points of transition.

It is not enough to expect people to come to one-stop-shops, however. Good practice includes pro-active outreach by independent advisors by basing themselves in GPs, chemists or community health centres, Children’s Centres, in Post Offices or Citizens Advice Bureaux. Better integration with skills providers and employers is also key. For example, vocational skills centres could be somewhere employers advertise opportunities and young people would drop in for advice and information about opportunities. Local authorities should be tapping into specialist job brokers to a much greater extent to passport people into better jobs for which they are qualified.

CASE STUDY

A4e runs a Community Legal Advice telephone service in partnership with Howells Solicitors. They have installed telephone booths in many outreach locations so that clients have instant access to advice and guidance on welfare, housing and employment law, which may be acting as significant barriers to employment.

Data sharing

One of the most substantial barriers to successful joint working which has been widely acknowledged,124 is around data sharing. Service providers and local authorities are limited in the data they can receive from the DWP due to guidance on the use of personal data and the interpretation of data protection legislation. When they are trying to integrate issues such as housing and health support this serves to frustrate and stymie successful joint working. It also prevents the intelligent use of information to understand and target the geographical and demographic patterns of worklessness to inform better policy making at local level. Many local authorities would like to have detailed information from the Department for Work and Pensions or their local Jobcentre Plus on clusters of unemployment, to enable them to address

124 Houghton (2009) ‘Tackling Worklessness: A Review of the contribution and role of local authorities and partnerships’ We Can Work It Out 81

broader barriers such as transport connectivity, housing and planning, and to enable them to undertake intelligence-based outreach right down to street level.

“There are data protection issues with Connexions – I say can you send me through the names and numbers of young people interested or looking for an apprenticeship? They refuse to because of data protection issues, even though they’re supposed to be part of the same system” Local Authority Apprenticeship Co-ordinator

We recommend that DWP reviews its policy on data sharing and devise memoranda of understanding with local authorities, the third sector or private providers on the secure but intelligent use of data.

Personalisation and the ‘Right to Control’

While the Government is keen to progress to a more personalised approach to getting people into work and has emphasized the importance of key advisers these are still predominantly focused on navigating the employment and benefits system rather than dealing with the broader array of barriers that face individuals.

Often the private sector and the voluntary sector are better able to deal with the most complex barriers that people face in getting back to work. More personalised approaches ensure that the unique and often complex needs of an individual are taken into account. Early findings suggest individual budgets in health care are starting to show good outcomes125.

In the Welfare Bill currently before parliament, there is a Right to Control provision for disabled people that will be piloted giving disabled people greater choice and control over the way services are delivered. This was in recognition that disabled people are often expected to fit into an inflexible framework of service provision, rather than services being personalised to respond to individual need126. This approach is potentially transformational, not only in terms of its potential to engage the user in shaping and commissioning the services they receive but also in the way it will force services to join up. While this approach is not necessarily transferable in its

125 Department of Health (2008), Evaluation of the Individual Budgets pilot programme final report 126 Prime Minister’s Strategy Unit (2005), ‘Improving the Life Chances of Disabled People’ 82 We Can Work It Out

entirety to those who are unemployed, in terms of the complexity of the services required. many of the same problems are faced by those furthest from the labour market.

Personal Advisers

Personal advisers in the work and benefits system are currently crudely divided up according to the benefit type. For example, personal advisers currently include: Jobseeker’s Allowance New Claim Advisers; Restart Advisers; New Deal Advisers; Under 18 Advisers; Disability Employment Advisers; Incapacity Benefit Advisers; Lone Parent Advisers. Again the individual is expected to fit into a benefit category rather than be assessed in a holistic way.

‘We’ve been looking at the path base and discovered that you can’t go into a JCP [JobCentre Plus] and see a disability advisor straight away but are bounced around the system first instead’. Local Authority Director

The importance of personal advice, and therefore of personal advisers, is increasingly recognised within the welfare reform agenda. We welcome the Government’s announcement on the day this paper went to print guaranteeing a deicated personal advisor to young people from day one of their unemployment claim. We would like to see this extended to all claimants regardless of age.127 Contracted employment programmes, where the customers tend to have more complex barriers to employment, have led the way in promoting the role of personal advisers. The Flexible New Deal specification revolves around the provider working with their customers to devise a personalised customer journey, which is articulated in an agreed action plan. Increasingly, lessons are being shared across contracted out provision and support delivered by Jobcentre Plus. There are pilots currently underway in Derbyshire and South Wales to build on the argument made in the Gregg review128 that increased discretionary funding for JobCentre Plus advisers could drive better outcomes.

This approach is a helpful first step but it is important that the role has the respective funding and commissioning powers for it to have any impact. Moreover,

127 HM Government (2009), ‘Building Britain’s Recovery: Achieing Full Employment’ 128 Professor Paul Gregg (2008), ‘Realising Potential: A Vision for Personalised Conditionality and Support’ We Can Work It Out 83

given the inter relatedness of the drivers of worklessness, the adviser should to be able to support the individual across the full range of local public service needs.

We recommend ‘Personal advisers’ who develop ‘back-to-work’ plans with individual claimants should be given a far broader remit. These advisers, or teams of advisers should have access to individually-allocated budgets to commission health, childcare, mental health support and other services in conjunction with claimants themselves, so that more comprehensive and tailored support is achieved. These Personal Advisers should be integrated into the wider partnerships of all local providers and public agencies.

The adviser (or indeed, where this is more appropriate, the team of advisers) could be based within from the Jobcentre Plus, the local authority, the third sector or the private sector but must have access to the broader range of support and intervention from across the local public sector required for the individual and their family. Although the adviser or team could be from another provider they should be allowed access to the full local range of services.

The adviser should have access to an individual support budget for that person which is spent in cooperation with the individual and can be used as best fits them. For example, it might purchase childcare or specific tailored training.

This would have substantial implications for workforce training and up-skilling. The expectation would not be that the advisers are specialists in an area but are highly skilled generalists whose job it is to undertake assessments, navigate the provision of services, understand how and where to make referrals and how to allocate the budget and resource most effectively.

As we move towards a ‘Total Place’ approach, we may see a move towards a ‘Total Place Public Service Professional’ who understands more how to co- commission with individuals and their personal budgets, who works across sectors and is a single point of contact with the local ‘public sector’ whether they are council private sector or third sector. 84 We Can Work It Out

Figure 20

Transition Travel service Employment and Advice transport

Childcare Financial Advice

Extended Housing schools and CT Personal Advisor or Team

Adult Interpreting Jobseeker education Service

Basic Community skills outreach training

Social Health housing care service Adult Mental social Health care Substance abuse

CASE STUDY

Southwark Works

Southwark Works is a multi-agency initiative aimed at helping people with barriers to employment get into work.

The Southwark employment strategy identified that particular disadvantaged groups faced additional barriers to employment and this was preventing them from accessing or engaging with some of the We Can Work It Out 85

existing mainstream provision.

As a result the local authority created specialist employment advisers working out of non-traditional settings and hosted by partner organisations and council departments, including: health and social care, education, housing, hospitals, training and employment providers and community organisations.

It was found that many clients accessing the programme were not able to move into employment in the short term. These clients were given continued support over a longer term and access to skills training and work experience, with employment remaining the intended outcome.

Advisers conduct outreach work across the borough through their host organisations, providing intensive and long-term one-to-one employment, training and education advice and guidance to the borough’s long-term unemployed residents.

This approach attempts to link the strategic objectives and the delivery of the different agencies in a more flexible way and enables the partnership to address complex multiple barriers while working towards employment for people from the most disadvantaged groups.

The customer journey

In practice, few single jobseekers require all of these services at the same time. Some groups have greater skills needs, while others need childcare support or mental health services. In addition, jobseekers may require different services at various stages in the job searching and employment process. This ‘customer journey’ approach129 of phased coordinated services is modelled in the diagram on the following page:130

129 Cabinet Office. http://www.cabinetoffice.gov.uk/public_service_reform/delivery_council/cjm.aspx 130 FND Customer Journey diagram from A4e. 86 We Can Work It Out

Figure 21 We Can Work It Out 87

131

131 A4e FND Customer Journey (2009) 88 We Can Work It Out

It is important to note that in this journey of a typical customer wraparound services are not only important at the support stage, but also play a key role in engagement and in-work support, ensuring the journey to work is sustained. For example, initial engagement in a worklessness programme may come through a referral from a GP or housing association. Likewise, mental health services or transport support may be crucial in helping a jobseeker sustain employment over the long term. Wraparound services thus cannot be mapped a one-directional line of delivery with a single provider taking the lead, but rather they must form a network of integrated support throughout the jobseeker’s journey to employment and beyond.

Conclusion

Failure to sufficiently build the eco-system of support services around the individual is currently leading to duplication, waste, over-complexity, and is, ultimately, blunting the impact of any single intervention with that person.

Moreover in an era of constrained public spending, this approach is no longer sustainable. Local services need to be integrated at a local level and built around the individual, who must play a key role in the design of the support. The capacity and understanding of all service providers must be harnessed, funding streams simplified and budgets aligned or pooled so that the shared objectives across all services of getting that person back into work are realised. As we will come on to demonstrate in the following chapter, the benefits of better integration across services will yield shared benefits to all parts of the public sector as the broader social and financial consequences of employment are realised.

We Can Work It Out 89

5 A Total Place approach to invest-to-save

The more holistic and intensley personalised approach outlined in the previous chapter is likely to have a substantial impact on the effectiveness of welfare to work interventions. Not only will it remove duplication but, in turn, will lead to cost savings by increasing the likelihood of that person getting off benefits. The beneficial consequences for the individual are well known but the savings to the Exchequer and the broader public purse could be substantial in this difficult time.

In this chapter we seek to demonstrate how, in a time of constrained finance hypothecated savings from getting people onto work could be brought forward fund welfare-to-work programmes.

Known as the ‘AME-DEL’ approach, first proposed by in the Freud Review132, it would enable a more flexible, invest-to-save approach to funding and should be accelerated. The urgency for this is even greater than when the proposal was originally made in 2007 since unemployment continue to rise and we are faced with an era of severely constrained public sector investment. Our calculations suggest that an invest-to-save approach could save as much as £1.4 billion per annum by getting more people off benefits and back into work.

In this chapter we will demonstrate how a ‘Total Place’ approach to the invest- to-save principles is required so that we can gain a full understanding of the inter-relation of broader social harm caused by unemployment. If this can be demonstrated the Government could not only reduce this potential broader social harm but also reduce spending on reactive public services that pick up the consequences, such as the health and criminal justice systems.

Investing-to-save

The ‘Invest to Save Budget’ (ISB) – a joint venture between HM Treasury and the Cabinet Office – has sought to harness some of the efficiency savings of joined up services. Through the programme local authorities, central

132 Freud (2007), ‘Reducing dependency, increasing opportunity: options for the future of welfare to work’ 90 We Can Work It Out

government departments, or third sector service delivery providers can apply for funding for innovative projects that create new types of partnerships for service delivery. Through new models of cooperation, ‘Invest to Save’ projects are designed to create integrated packages of services – both to make life easier for users and to improve public sector efficiency.

Some of the projects are still underway but those that have been evaluated have demonstrated significant cost savings. For example, the Building Jobs for the Future Ecosystem offered pre- and post-employment support for ethnic minorities in London boroughs through Jobcentre Plus, the DWP, a private training provider, and a recruitment agency. An evaluation of the program found that for every £1 invested, £5.21 was generated in benefit savings, tax generation, and economic activity.

Another successful project, WorkOut Pecan, brought together Jobcentre Plus, HM Prisons, probation services, and several community organisations to provide training and employment support for ex-offenders. The project had a 70% success rate at moving clients into employment, training, or education, ultimately saving £6.4 million – more than three times the ISB funding grant. These savings came from benefit reductions and tax generation, as well as saving future reconviction, custody, and social costs.

These success stories demonstrate the potential savings that can be achieved by using innovative approaches to integrate employment services with other core wraparound services.

Funding reform with savings

The projects described above were made possible through ISB grants from HM Treasury. Another form of ‘Invest to Save’ that has received attention recently is the AME-DEL transfer. This accounting model allows a transfer of funds within the Total Managed Expenditure Budget from the savings in benefit expenditures (from the AME, or Annually Managed Expenditures budget) to the administrative costs of projects and partnerships to get people back to work (the DEL, or Departmental Expenditure Limit).

In practice, this means that the Treasury transfers funding for benefit payments to the DWP for a three year contract and the DWP then contracts with providers to deliver support to jobseekers to get back to work. Intensive We Can Work It Out 91

support for those furthest from the labour market carries a high cost (much higher than the unit cost budgeted for most provision), which means that it is not always commissioned, even though the economic and social return on this investment should make the case. The main benefit of the AME-DEL transfer is that the value for money and affordability of this intensive support is recognised, as the Treasury can calculate the cost-benefit analysis over the medium or long term. Outcome-based contracting can incentivise providers to achieve the best results.. A pilot of this model, Invest to Save Pathfinders, will begin in March 2011 in five localities across the country.

AME-DEL transfer frees up crucial money for investment – using hypothecated savings to prevent the great cost both in human and financial capital of unemployment and benefit dependency.

Savings that could accrue

Taking the Freud Review approach of calculating the savings accrued to the cost of benefits by getting people back into work, we have updated the analysis to show how failure to invest now in back to work services will result in even more substantial growth in benefit demand.

In total DWP’s AME predicted spend on working age benefit for 2010-2011 is budgeted at £53 billion. The DEL budget for 2010-11 is predicted at £5,3 billion.133 These figures demonstrate vividly that JSA claimants and those on back to work programmes take up a much smaller amount of expenditure than those on long-term benefits. And Government should not take its eye off the ball with long term dependency in the urgency to tackle rising inflows.

The graph overleaf shows the growth in AME spend (£million) on working age benefits since 2003/4.

133 DWP (2009), Departmental Report 92 We Can Work It Out

Figure 22 Predicted growth in the AME spend (£Million) on working age benefits

60,000

50,000

40,000

30,000

20,000

10,000

0 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11

[Source – DWP Annual Report 2009)

This growth in benefit spend (a 46 percent increase between 2003/4 and 2010/11) means that a reduction of just 5 percent(the figure used in the Freud Review as achievable through outcome-based intervention by the private or third sector) of those going onto ESA and JSA support could now yield as much as £1.4 billion annually in savings to the DWP’s AME expenditure.134

Naturally this depends on there being employment opportunities available for people, and we will explore further in the next chapter how local approaches to stimulating economic opportunities are key.

Nonetheless this figure is substantial, and all the more important given the urgency of attempts to reduce public spending in order to tackle the debt crisis. Not only will this approach mean savings without affecting front line services, but will have broader beneficial social outcomes that result from increased employment.

134 See Appendix 1 for calculations. We Can Work It Out 93

While we welcome the Government’s plans to implement five pilots in 2011, we suggest they go further and faster given the urgency of the economic climate.

The hypothecation of spending from the AME budgets is a crucial means to access resources to pump-prime investment in the programmes and support that will get people back into work. The impending difficulties in public sector finances make this approach even more urgent.

We recommend that the Government takes forward the proposals in the Freud Review with immediate effect to use savings from AME benefit spend to invest more in preventative, back to work programmes.

The hypothecation of spending from the AME budgets is a crucial means to access resource to pump-prime investment in the programmes and support that will get people back into work. The impending difficulties in public sector finances make this approach even more urgent

A ‘Total’ public service approach to ‘Investing to Save’

Currently, calculations in the Government’s five AME-DEL pathfinder pilots only factor in savings from direct employment benefits. But it is not just the DWP which would benefit economically from getting people back into work. Below we identify other areas of public spending where getting those furthest from the labour market back into work would have the most impact. Little evidence exists about the direct costs of unemployment on demand for other costly public services. However, we have some understanding of causal links between many complex barriers to employment and broader social disadvantages.

Local Authority AME-DEL savings

While current plans for the AME-DEL model are highly centralised and limited to switches within DWP budgets, London Councils has advocated opening the model to local authorities to allow local authorities to pull funding from across their budgets and agree targets and outcomes for local areas so that they could demonstrate they could use benefit spending more productively135.

135 Minutes of the London Councils Economic Development Forum, March 2009 94 We Can Work It Out

We consider this a positive approach. NLGN has recommended in the past that a greater ability to innovate and invest to save at a local level should be incentivised by central government. Where local authorities make identifiable savings to the national benefit, 50% of any benefit savings should be returned to the local authority, and central government should guarantee that these funds would not be clawed back via grant reductions for at least five years.136

Broader Savings

There are also broader costs of unemployment outside of those to the DWP or the Exchequer on working benefit savings, and central government should look to calculate these, taking a ‘Total’ public service approach. For example, the Government could look to the eventual savings in housing benefit and council tax from getting people back into work and use them to fund support to help people find and keep a job. The latest figures show that 69% of Council Tax Benefit recipients are also in receipt of Income Support, income- based Jobseeker’s Allowance, Employment Support Allowance or Pension Credit.137

We recommend that Government do some sophisticated modelling on the cost-benefit implications for savings made to housing benefit and council tax benefit and that this work should be tied into a proper analysis of the role these benefits may play in reinforcing dependency and making it harder to get people back into work.

Government should also work across Whitehall to calculate the savings that could be made across the broader public sector budget. For example, research shows that employment reduces the risk of re-offending by between a third and a half and that prisoners are 14 times as likely as the general population to be unemployed.138

It should be possible for central government to calculate potential hypothecated savings to the criminal justice system. With the National Offender Management Service budget alone standing at £4.7billion, savings through increasing employment and thereby reducing reoffending could be

136 Brand, Dallison and Iacopini (2008), ‘The Local Journey to Work’ 137 DWP, Quarterly Statistical Summary, (11th November 2009) 138 Home Office (2002), ‘Justice for All’ We Can Work It Out 95

substantial and that is before taking into account the costs of the judicial process as well as the damaging financial and personal costs to victims.

There would also be substantial savings to the health budget since there is evidence that unemployment actually contributes to poor health. Research has shown that health service use falls and illness rates rise for individuals after losing their jobs139, and that unemployment carries a higher risk of morbidity and premature mortality140.

One explanation for this causal link is that debt and poverty are linked to poor diet as well as poor quality and over-crowded housing. Unemployment is also linked to stress-related health problems such as cardiovascular disease, stomach ulcers and hypertension.141 The causal relationship between worklessness and mental health problems is even stronger, with abundant evidence that unemployment leads to increased psychological distress, mental disorders and suicide rates.142 We also know that it has consequential effects on relationship breakdown, domestic violence and child poverty.

Of course with many of these factors it can be difficult to demonstrate a causal link, but there is currently insufficient government analysis of these inter-dependencies or of how improvement in one outcome may have a substantial impact on others.

Some preventative approaches that are joint with health services are already in evidence:

Tomorrow’s People, which aims to break the cycle of unemployment so that people can take positive control of their lives has linked up with over 80 GP surgeries from around the country. Patients who are out of work for health-related reasons can get support on getting back into work from specialist employment advisers.

A4e is helping to tackle health poverty through the delivery of the Community Outreach and Family Support Service (COFFS) on behalf

139 NHS, Health Development Agency (2005), ‘Worklessness and health – what do we know about the causal relationship?’ 140 Sir Donald Acheson (1997), ‘Independent Inquiry into Inequalities in Health Report’ 141 DWP (2005), ‘Understanding workless people and communities: A literature review.’ 142 NHS, Health Development Agency (2005) ‘Worklessness and health – what do we know about the causal relationship?’ 96 We Can Work It Out

of Aston Pride - a New Deal for Communities area and the Heart of Birmingham NHS Trust. The COFFS Service was specifically developed to increase local access to health and social care, reduce infant mortality and increase life expectancy. The COFFS project manages the delivery of both individual and family based support services.

The COFSS scheme deploys teams of trained professionals including community family support workers, maternity support workers and specialist welfare officers at community based centres such as mosques and schools. The challenge is to engage with those who fall through the healthcare net at those key points of contact and assist them back to the mainstream health services. A4e are tasked with managing the programme to ensure the Health and Regeneration vision is successfully implemented. This includes providing all service providers with required infrastructure and systems to ensure services are delivered to a high standard. Essentially, successful management of the programme requires implementing change in the way services are delivered and accessed across Aston.

We recommend that the Government undertakes a full assessment of the broader implications of employment to the economy, to public services as a whole and the wellbeing of the UK. Government should do a more sophisticated analysis of causal determinants and then approximate potential savings to the public purse could be calculated to support the case for a cross-cutting approach to worklessness.

The more proactive approach for local authorities and local public services that we envisage sees their role as going beyond that of delivery of services or simply being an administrator of benefits to one that is dynamic and tries to shape the kind of places we want to live and improve our lives. In order to use the approaches we have advocated so far to get people into work, there have to be jobs for them. We do not believe this is beyond the boundaries of the active local authority either. The following chapter explains the role we see for local authorities in driving economic enterprise and business investment to create opportunities for the skilled and work-ready labour force that it has worked so hard to create. We Can Work It Out 97

6 New local economic and skills activism

“An active government approach to equipping this country for globalisation means making sure we have the skills that underwrite the industries and jobs of the future. That means skills for the high tech, low carbon, more high-value added sectors that drive the growth that underwrites everything else we want to achieve as a society. These skills are becoming more sophisticated and complex, and more vital.” Lord Mandelson, Secretary of State for Business

We need to help people overcome barriers to employment, but we also need to make sure that they have jobs to go to. There has often been the perception that the local economy and the jobs market is something that operates outside the remit of a local authority and that they can only react to the slings and arrows of wider economic fortunes. We argue that it is not just national government that has an interventionalist role, but that this must be led at the local government level too.

If local authorities are to take their roles of economic place-shaping; if they care about the implications of unemployment in their local area; and they want to show strong local leadership, they need to forge a new role in driving and shaping the local economy and the skills, business and enterprise opportunities for their local people.

Much good work is already being done by many councils but there are those that must do more. This chapter argues that councils must be ever-mindful of the activist role they should play and generate a mindset throughout their organisation and locality that allows them to exploit and create new economic opportunities.

National industrial and skills activism

In the wake of the recession, ‘industrial activism’ has become a popular refrain among those defining plans to re-tool the economy. The term was first coined by Lord Mandelson, Secretary of State for Business, Innovation and Skills, in a series of speeches in December 2008. The principles underlying the Government’s call for industrial activism include: 98 We Can Work It Out

•• The Government should not prop up failing companies or industries

•• The Government must complement market dynamics to enable companies and people to succeed

•• Extending beyond traditional industrial policy and including regulation, planning, migration, and transport policy

•• No top-down political patronage to companies but rather a horizontal approach to secure maximum benefits from each sector across the economy143

One of the key ways that public policy can complement market mechanisms to promote economic growth is to ensure that industries are not held back by supply-side constraints such as poor infrastructure or lack of skilled workers.

This requires close cooperation with other Government departments, and the skills sector has responded to this rallying call for strategic, activist skills policies. In April 2009, before DIUS merged into the Department for Business, Innovation and Skills (BIS), the then DIUS secretary John Denham delivered a speech introducing ‘skills activism’ – a complementary agenda to move toward a more active role for the Government in analyzing and directing skills provision.

“It means a new thrust in government policy. Not a return to picking winners, but of consciously organizing ourselves for success in the areas of our greatest strength. And this means being coherent across public policy. From what Government buys, and whether it encourages innovative solutions and new companies, to where we invest in fundamental research. From how and what we regulate, to finance for start-ups.”144

This move represents a departure from the demand-led skills system that came out of the Leitch report recommendations. This demand-led system was designed to respond to the needs of employers and learners through schemes like Train to Gain. However, even before DIUS announced their new tack towards skills activism, some had begun questioning the effectiveness of

143 BERR (2008), Rt Hon Lord Mandelson, Lecture to RSA, ‘A new industrial activism’ 17-12-08 144 DIUS (2009), Rt Hon John Denham MP, Lecture to RSA, ‘Raising skills in the UK workforce’ 01-04-09 We Can Work It Out 99

a system that relies solely on demand. The House of Commons Committee on Innovation, Universities, Science, and Skills issued a report in January 2009, ‘Re-skilling for recovery’, which raised questions about whether individual employers could accurately gauge their current and future needs. It also questioned whether the Government was equipped to determine the level of demand and the extent to which those demands are being met. On the individual side, the report questioned the system’s responsiveness to the needs of the workless and its effectiveness at building their motivation, confidence and basic skills.145

Rather than simply rely on market mechanisms that seek to respond to the demands of individual employers and learners, an active skills policy would mean that government plays a more direct role in increasing the demand for, and supply of, skilled labour in strategic areas. This would involve both promoting government policy that shapes the demands for skills in particular sectors as well as incentivising employers to invest in skills provision, expand apprenticeships, and encourage participation in Train to Gain.146

Government can play a role in shaping demand and supply for skills in the “new” economy. In his speech introducing skills activism, the Secretary of State identified several examples of ways that policy can stimulate investment in and demand for particular skills: 147

•• Government regulation - standards in social care, for example - has a direct impact on the demand for, and investment in, skills.

•• Decisions to limit immigration for broader social objectives could, for example, change the demand for skills in the hospitality sector.

•• Investment in major infrastructure and construction projects - from school building to Crossrail and the Olympics.

•• Creating expectation of future business - by setting out a framework for renewable energy, for example.

145 Houses of parliament (2009), Innovation, Universities, Science and Skills Committee, ‘Re-skilling for recovery: After Leitch, implementing skills and training policies.’ 146 Learning and Skills Improvement Service (2009), ‘Skills activism brief guide.’ 147 DIUS (2009), Rt Hon John Denham MP, Lecture to RSA, ‘Raising skills in the UK workforce’ 01-04-09 100 We Can Work It Out

Beyond Whitehall activism

Much of the rhetoric from Ministers about industrial activism has been centred on what can be achieved from Whitehall. However, there has been recognition of the need for a sub-national approach. In a speech on industrial activism in January 2009, Lord Mandelson stated that “the next industrial revolution will, once again, be driven by regions. Industrial activism has to be built on precise regional knowledge of what is needed in terms of infrastructure, investment and training. I see the RDAs taking a leading role in this.”148

Though regions have some strategic sub-national role to play, we contend that a more devolved approach is needed with local authorities at the heart. In this country we live in a series of highly varied economies with different assets, histories, businesses, industrial strengths, infrastructural weaknesses, and employment and skills challenges.

Local authorities, working in collaboration sub-regionally where appropriate, should be given the lead in employment and skills activism. In recent years, Ministers have come some way in recognising the economic role that local authorities should play. The Sub-National Review, launched in 2007, outlined the Government’s intentions to give local authorities powers to respond to local economic challenges and improve economic outcomes. It stated that ‘…further reforms are required so that localities are able to provide an economic environment which enables firms to adapt to and create new technologies and opportunities’.149

We welcomed the recognition in the SNR that localities need greater flexibilities, powers and incentives to respond to economic change. However, particularly given the economic context, far greater urgency is needed from central government and more rapid devolution is vital. New powers should be made available to local authorities, particularly those working strategically at the sub-regional level, to deliver the infrastructure and inward investment needed to create jobs and drive economic success.150

148 BIS (2009), Rt Hon Lord Mandelson, Speech in Salford, ‘Putting regions at the heart of industrial activism’ 17-12-08 149 HMT, CLG and BERR (2007), ‘Review of Sub-National Economic Development and Regeneration’ 150 See Hope (2009) ‘Bordering on Prosperity: Driving Forward sub-regional economic collaboration’ We Can Work It Out 101

The local barriers to sub-regional collaboration should not be underestimated. Overcoming political divides, managing fears about loss of sovereignty and diverting resources from locally focused activity are just some of the obstacles that need to be overcome by councils. There is a “pain versus gain” dynamic, where the steep change that is needed in many areas is unlikely to take place unless there is the prize of real and meaningful powers within reach.

The problem, however, does not rest solely with Whitehall. Too many local authorities are unwilling to cooperate where they should and narrow institutional self-interest must be put aside. We strongly urge councils to form collaborative partnerships to match the functional economic geography within which they operate.

A sector based approach

Matching the supply of available labour to current employment vacancies is of course essential, but not enough. Localities must look beyond “matching” and stimulate demand for jobs by adopting a more sustainable “place- led” approach to employment and skills.

Recent research has found that a lack of work was seen as a primary barrier to employment in deprived communities before the recession and has been exacerbated by the economic downturn.151 Such findings indicate that Whitehall’s focus on supply-side measures when tackling worklessness, such as improving skills or motivation, is insufficient and that a greater emphasis should be placed on demand-side measures.

Importantly, skills policy needs to consider time periods which go beyond short-term business cycles and sophisticated horizon scanning is important. A less short-sighted attitude and more strategic economic approach is needed in which particular sectors and skills needs are targeted to give an area competitive global economic advantage.

Global and technological progress is resulting in rapid industrial and sectoral restructuring, which constantly presents employment and skills challenges. Local authorities must be proactive if their areas are to successfully adapt to meet new economic opportunities and avoid pitfalls.

151 Crisp et al. (2009), ‘ Work and worklessness in deprived neighbourhoods’ 102 We Can Work It Out

Early identification of new and emerging skills requirements and harnessing the potential of so called “sunrise industries” (new or relatively new industries that are growing fast and expected to become important in the future) is vital. In the short to medium term driving economic recovery through skills enhancement is crucial because skills are, and will be, needed to respond to the new economic structures that will emerge and to fill the new jobs that will be created.152

There is concern that employment growth in the 2000s was built on a narrow concentration of industries – specifically government, retail, construction and finance – and that this contributed to the vulnerability of the economy.153 The Conservative Party’s policy document ‘Reconstruction: Plan for a Strong Economy’ states that ‘Our future prosperity depends on a more balanced economy that is not dependent on just a few sectors. A more balanced economy will be more resilient to shocks and less prone to boom and bust’.154

There is growing recognition that a new activism is needed that helps mitigate market failure, particularly in providing the necessary levels of investment in skills training and investment in new innovative businesses and which promotes growth in sectors to ensure a stronger, diverse and ultimately more resilient economy.

However, market failure must not be replaced by sub-optimal state investment in sectors by government. The new economic activism must be done in a sophisticated way that capitalises on existing assets and builds on the knowledge base of current industries. This “initial advantage” – personal networks, technical skills and market knowledge – gives particular clusters comparative advantage over other areas.155

Moreover, while local authorities must capitalise on the opportunities that sunrise industries present, they must also be wary of false dawns. Take for example, green and renewable technologies; not all localities, regions and nations can be world leaders in this field and there is fierce global

152 European Centre for the Development of Vocational Training (2009), ‘Future skill supply in Europe’ 153 Clifton et al. (2009), ippr, ‘Building a better balanced UK economy: Where will jobs be created in the next economic cycle?’ 154 Conservative Party (2008), Reconstruction: Plan for a Strong Economy 155 Professor Christopherson (2009) ‘Building the “phoenix industries” in our old industrial cities’ in The Smith Institute ‘The Future of Regional Policy’ (2009) We Can Work It Out 103

competition for such status. In addition, some warn that the most creative green industries such as solar energy and wind power conversion will create relatively few jobs in design and installation – compared with the production and manufacturing jobs already being outsourced globally.156

Therefore, a detailed understanding of the economic opportunities sectors present should be conducted.

We recommend that all local authorities start work on this economic assessment before the Government’s statutory duty to do so commences, which is likely to be April 2010.

Councils must ensure that their economic activity is firmly integrated with their wider social policy. Recent research has found that worklessness featured in only 13 out of 23 local economic strategies, suggesting that in some councils there is a disconnect between economic policy teams and other council departments.157

CASE STUDY

Linking long term economic strategy with efforts to tackle worklessness

Kent County Council is making a concerted effort to ensure that current efforts to tackle worklessness are fully embedded within a strategy to support the county’s long term economic development.

As part of this the Council is seeking to develop a better – and realistic – understanding of where future economic growth will come from. A series of reports on the opportunities presented by key economic sectors is well under way, starting with an analysis of how Kent will meet the transition to a low carbon economy158. Through the county’s Employment and Skills Board these are also informing and being informed by business views of current and future skills gaps, making a strong connection between Kent’s regeneration, education and skills teams.

156 Professor Fitgerald (2009) ‘Building the local green new deal in the United States’ in The Smith Institute ‘The Future of Regional policy’ (2009) 157 Centre for Local Economic Strategies (2009), ‘Toward a new wave of local economic activism.’ 158 Kent County Council (2009), ‘Low Carbon Opportunities for Growth’ 104 We Can Work It Out

The sector analysis currently underway will contribute to Kent’s Local Economic Assessment, on which work has already started. Kent is also linking its Economic Assessment duty with the need to gain a better understanding of the dynamics of worklessness, with a comprehensive Worklessness Assessment already produced to support the practical delivery of Future Jobs Fund in the short term as well as the wider Economic Assessment in the longer term.

Kent County Council has mapped relative sectoral adaption and job growth between 1996 and 2006 (see Figure 20) and, as part of their regeneration framework, has developed ‘sector and activity’ based skills priorities, which are rooted in a analysis of future market opportunities and business strengths.159

Figure 23 Kent County Council relative sectoral adaptation and job growth between 1996 and 2006

25,000

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5,000 Number of jobs

- 5,000

- 10,000 Food Other health Catering Hotels & Retailing Transport Education & Finance Wholesale & Defence Agriculture, Distribution Engineering Chemicals & Construction Public Admin Fuel Reﬁning, Other Services Manufacturing Communication Energy & Water Energy Pharmaceuticals Business Services Minerals & Metals Minerals Forestry & Fishing Forestry Banking, Insurance

CASE STUDY

Moving from a ‘low skills-low wage’ economy

Kirklees Council recognises that as well as improving skill levels

159 Kent County Council (2009). ‘Unlocking Kent's Potential - KCC's Framework for Regeneration 2009 – 2020’ We Can Work It Out 105

and engaging people in the labour force, it will be important to try to diversify the local economy. In particular they aim to attract and encourage new investment by firms moving into the district and by local firms expanding, where major investment is frequently paralleled by improving the skills of the labour force.

Progress

The Council’s economic strategies aim to encourage economic diversification. There has been steady growth in the role and importance of Huddersfield University in stimulating the development of new sectors (e.g. creative, tourism etc). The development of the Kirklees Media Centre, the support for added value businesses and sectors, and joint work with the University on innovation and entrepreneurial growth have all helped to re-position Kirklees as a place that can and will work with world class businesses. Fast-growing companies, such as Mamas and Papas, have been attracted to locate in the district offering well paid sustainable employment in a knowledge rich environment.

Planned actions

• Greater employer input to the Labour Market and Skills Board and the skills agenda • Tackling the low skills/low wage economy overall and narrowing gaps around the agenda between communities will be a key component of the Economic Investment Strategy – both through direct action and indirectly through a more diversified economy • Developing skills for a sustainable future by developing key sectors such as the environmental technologies sector and exploring the potential to establish a Centre of Excellence in sustainable construction skills

Challenges

The continuing development of the knowledge economy and the creative and cultural sector risks opening up an even wider gulf between those with relevant skills and those without, unless appropriate interventions and connections are made. The Council’s Enterprising Neighbourhoods Strategy sets out a range of actions 106 We Can Work It Out

which are aimed at encouraging entrepreneurship in our most deprived communities. Their Economic and Sustainable Investment Strategy will set out how they will aim to promote our key growth and added value sectors both to employers and to regional and national agencies, including Yorkshire Forward.

Measuring Outcomes

Building a resilient economy. Kirklees is working in partnership to achieve a better score on the EKOS Resilience Index - of the 60 cities whose resilience was assessed in the latest survey (late 2008) Kirklees performed relatively well, with an overall score of 44.1 (out of 100) just above the average of 43.5 for all urban areas on the Index.

Growth in the number of knowledge and creative businesses: Annual Business Inquiry data on firms and jobs will be monitored as part of regular economic analysis of district.

A new local economic leadership

The ability of new firms, particularly those smaller in size, to innovate will be a key ingredient to successful economic recovery and sustainable growth. In particular, “phoenix industries” – new firms that grow out of old manufacturing companies – look very different from their predecessors, consisting of many small and medium-sized enterprises rather than one dominant employer.160 The overwhelming majority of small and new firms operate at a local level and so it is at this spatial level that the challenges they face will be played out.161

Too often, a limited ability for self-financing, such a lack of collateral or personal savings or a dearth of financial sources in the market, mean that ideas or ventures never take off or wither away. Smaller firms see access to finance as a much greater barrier to growth than larger firms.162

160 Professor Christopherson (2009) ‘Building the “phoenix industries” in our old industrial cities’ in The Smith Institute ‘The Future of Regional policy’ (2009) 161 OECD (2009) ‘International Conference on SMEs, Entrepreneurship and Innovation: Issues Paper’ 162 Beck et al. (2006), ‘Small and Medium-sixe Enterprieses: Access to Finance as a Growth Constraint’, Journal of Banking and Finance, 30 (2006), pg. 2931-2943 We Can Work It Out 107

Many local authorities support micro-finance and community-based lending, such as through Community Development Finance Institutions (CDFIs) which are able to make loans to local businesses that are unable to get credit from mainstream sources. The number of CDFIs has increased significantly in recent years, as has the amount of capital that they are lending to businesses.163

Though important progress has been made we believe that there are a number of radical measures that local authorities should take to support the start-up and success of small and medium enterprises (SMEs). A recent survey by the British Chambers of Commerce found that, despite the Bank of England injecting £200bn into the economy to boost money supply, a third of businesses report that accessing finance has been more difficult in the last three months. Lending to business is 3.4% lower than a year ago.164

We recommend that a new localist venture capital policy is adopted to supplement the private sector’s capital investment.

There are a number ways in which local authorities can help improve and boost the supply of loan and equity finance available in localities. First, indirectly by supporting Business Angel Networks (BANs) – a variety of people with wealth, often entrepreneurs themselves, who are willing to invest money in new enterprises and provide them with support, contacts and advice.

We recommend that local authorities help support and expand local BANs by offering to subsidise or fully meet secretariat costs, for example providing office space and staffing.

Recent research by the OECD has found that, given the relatively small amount of money required to run a BAN, the public sector can expect to achieve a very high level of leverage on the investment raised.165

Second, better co-ordinated support from the public sector should be provided. Currently venture capital is provided for SMEs both at the regional and local spatial tier.

163 CLG (2008), ‘Tackling worklessness: A review of the contribution and role of English local authorities and partnerships’ 164 British Chamber of Commerce (2009), Press Release: 16/11/09, ‘Businesses report worsening financial situation’ OECD (2009) ‘International Conference on SMEs, Entrepreneurship and Innovation: Issues Paper’ 108 We Can Work It Out

We recommend that the Single Integrated Regional Strategy, with strong input from the Local Authority Leader Board, is used to coordinate local and regional venture capital activity.

Functional economic sub-regions should be given particular focus in this strategy and, where possible, responsibilities to enable investment in SMEs should be devolved to this spatial tier from the RDA. Leeds City Region, for example, are looking to create a Innovation Fund to support innovation in existing core sectors along with helping business start ups in new sectors.166

Third, in addition to better coordination of financial support for SMEs, there needs to be far greater venture capital support on offer.

We recommend that local authorities, working collaboratively when it will add value, adopt a far more ambitious and direct venture capital role.

This will involve both local leaders and Whitehall taking on new attitudes to risk and a new role in stimulating economic growth for councils.

CASE STUDY

3EN Ventures167

Basingstoke and Deane Borough Council has set up ‘3EN Ventures’, a new capital fund to encourage entrepreneurial activity in the locality that will have economic benefit to the area. It is the first investment fund of its type to be set up and funded exclusively by a local authority.

The fund concentrates principally upon pre-revenue businesses – so it is not aimed at well established businesses – and offers risk capital investment of up to £75,000. For most projects the aim will be to enable them to reach the point where they can attract Venture Capital funding on a larger scale or “second round financing”.

Typically businesses have to demonstrate:

•• Technology with clear and demonstrable user advantage, with

166 Leeds City Region (2009), Impact, Innovation, Leadership: The Leeds City Region Forerunner Plan 167 3EN Ventures (2009), information available at http://www.3enventures.com/?page=Home We Can Work It Out 109

product at prototype / beta-testing stage.

•• A defensible market position based upon intellectual property rights, and a scaleable business model.

•• A motivated and committed management team with the drive, focus, and ability to develop a realisable value platform, and;

•• The potential to achieve an exit for investors within four to six years.

3EN Ventures are happy to invest alone or with co-investment partners and will also work alongside the technology transfer companies.

We believe that the new venture capital role we propose for councils should not be restricted to the private sector and should be a catalyst for sustainable job creation across the economy. Therefore:

We recommend that local authorities should consider how they can act as entrepreneurs themselves to spin-off new commercial public and public- private trading companies and support the creation and development of social enterprises.

We believe that these active labour market policies should be built on three principles:

Profitability: The new enterprises must have strong business models and returns should be commensurate with risk with social enterprises reinvesting their surpluses to further social, environmental or cultural objectives.

Sustainability: The jobs created must not simply be a “sticking plaster” and the new enterprises must be resilient and not focused exclusively on short- term returns.

Additionality: That new enterprises should complement existing jobs, rather than undermine or displace other employment in the area, avoiding market distortion wherever possible.

A “municipal entrepreneurship” is needed, but this will require the development of new skills and competencies. Underlying this is the need for a more sophisticated attitude to risk. A cultural shift from unnecessary risk-aversion 110 We Can Work It Out

to a more mature and managed approach is required. To help facilitate this cultural shift we recommend that central Government introduces a “general power of competence”, which would give councils the freedom to exercise their powers and capacity to help support their locality and residents. Such a reform would help remove the legal doubt that perpetuates the status quo and serves to provide a convenient excuse for inaction by councils who are unwilling to step outside of their comfort zone.

CASE STUDY

Digital City UK168

Swindon Borough Council is funding, jointly, with the private sector, to make Swindon the first town in the UK to provide free internet access to all its residents. They have teamed up with the concept’s originator Rikki Hunt and digital technology firm aQovia to create the company Digital City UK, which under the brand name ‘Signal’, will install a Wi-Fi wireless mesh covering the whole of the Borough of Swindon.

This commercial venture will provide a range of services and applications for the whole community including free connection to the internet, free line rental and connection charge, and borough- wide movement, while staying online. The public will be able to access the internet and download emails for free but usage will be limited. Subscribers will also be able to sign up for 20Mb upgrades for significantly less per month than major broadband competitors following a free three-month trial, while there will be pay-as-you-go options so visitors to the town can benefit Digital City UK will provide the Council with a unique funding stream and the model could be sold to other local authorities.

CASE STUDY

Norfolk County Services Ltd (NORSE)169

Norfolk County Services Ltd was set up by the county council in the late

168 Swindon Borough council (2009), Press Release 16-11-09, ‘Swindon Council makes the internet free to all’ 169 Information available at http://norfolk-county-services.co.uk/about_ncs.htm We Can Work It Out 111

1980s in response to blue collar compulsory competitive tendering. It was converted into a limited company to enable it to trade more widely. Recently re-branded as “Norse”, it operates as a facilities management, contract services and strategic partnership provider, and has in the process achieved a market-leading position both in the public and the private sectors. Norse now has an annual turnover approaching £80 million and a payroll of nearly 5,000 full and part- time employees.

CASE STUDY

Kent Top Temps Ltd170

Kent Top Temps is an employment agency – wholly owned by Kent County Council – that aims to provide excellence and leadership in the flexible staff market. Kent Top Temps Ltd grew out of an agency for temporary administrative staff set up by Kent County Council in 2003. Now established as a trading company, its activities have been extended to care workers and to other categories of staff required by the public and private sectors. It has the scope and resource to excel and grow in this fast moving and highly specialised field within Kent and throughout the South East. The agency’s purpose is to provide temporary and permanent employment solutions across a variety of disciplines within the public and private sectors.

CASE STUDY

EFA (Trading) Ltd171

EFA (Trading) Ltd/Fire Service Safety Partnership is the commercial arm of Essex County Fire and Rescue Service. The Fire Service Safety Partnership specialise in fire risk assessment (FRA), fire safety training and seminars, providing fire safety training, and gives advice to thousands of businesses and individuals every year. Being located in Essex, it is in the position to provide fire safety risk assessments and

170 Information available at http://www.kenttoptemps.co.uk/ 171 Information available at http://www.essex-fire.gov.uk/images/efa/Agenda_Item_7_EFA-07409_ Consultation_on_freedom_and_flexibilities-_trading_power.pdf 112 We Can Work It Out

training throughout London, Essex and the surrounding counties. It also sells products such as fire extinguishers, batons, fire safety DVDs and many more fire safety items. The trading activities of the Authority have resulted in profits which have been channelled to support a wide range of community safety activities within Essex.

Some new local authority entrepreneurial activity might be counter-cyclical and when normal market conditions return – in order to avoid a displacement of market activity – the public trading companies, or public share of public- private trading companies, could be sold on. Indeed, any councils wary of a long term intervention in potentially market-led activities could consider introducing a “sunset clause” provision that would compel the dispersal of the company at a later date or in particular specified circumstances.

Councils must be given financial incentives to grow their economies and create jobs. Since non-domestic business rates were nationalised in 1990/91 following the introduction of the Poll Tax, there has been no direct financial connection between the fruits of economic growth and the financial flexibility of local government. Though the Local Authority Business Growth Initiative (LABGI) has gone some way to reward councils where business premises growth is faster than the regional average, the formula is too complicated to generate the required drive from members and officers locally. Therefore, as NLGN has advocated for many years, we believe that business rates should be de-nationalised and returned to local authority control under the following conditions:172

•• Increases in business rates should be capped at no higher than the increase in the same local authority’s increase in council tax.

•• The local government family through the LGA should be required to design its own system of equalisation of business rate income between local authorities. Enactment of the equalisation should be dependent on 90 per cent support in a vote of all local authorities in England, where each authority has one vote.

•• All increases in the tax take from increases in new business premises

172 For detail of how this could work in practice see Sorabji (2006), ‘Pacing Lyons: a route map to localism’ We Can Work It Out 113

gained after the initial localisation of business rates, should be retained by the individual local authority.

•• Councils should be allowed to retain these gains for 10 years before the expanded tax take is assessed as part of the equalisation process.

•• Revaluation of business rates should occur every five years.

Although increased business activity will promote jobs, we believe that the first 5p in every pound of income tax is a better reflection of employment in a locality. Therefore:

We recommend that the first 5p of income tax in every pound generated by every additional employee in the area is retained locally to further incentivise councils to boost sustainable employment.

The role of the public and social sector in Apprenticeships

Local authorities should be at the heart of the complex eco system of third sector and wider public sector bodies in localities. They must ensure that they lead by example in providing training and job opportunities and that the wider public and social economy is utilised to achieve these objectives.

As one of the largest employers in a locality, councils must consider the ways in which they can directly provide skills training opportunities and apprenticeship places. Many local authorities across the country have signed the Skills Pledge, a voluntary, public commitment made by an organisation to invest in the skills of its workforce. It is a promise that the employer will work to realise the potential of all their employees by developing their basic skills and working towards relevant, valuable qualifications – a commitment to train their workforce to at least Level 2 (the equivalent of five good GCSEs, grades A–C).

We would strongly encourage those local authorities who have not yet signed the Skills Pledge to do so. Not only would signing the pledge support higher productivity and efficiency levels, improved levels of customer service, a motivated workforce, increased staff satisfaction and higher retention rates, but if local authorities are to take the lead on skills in localities they must practice what they preach. 114 We Can Work It Out

The local government sector must also expand the number of apprenticeships it offers. Though some authorities have made important progress in providing apprenticeship places, many councils must dramatically expand their apprenticeship programmes. The recent ‘Tackling Worklessness’ Review, conducted by Councillor Steven Houghton for the Department for Communities and Local Government, stated that councils should provide 50,000 apprenticeship places by 2011 but warned that this would require financial resources to stimulate these new opportunities.173

CASE STUDY

Lancashire County Council: Apprenticeships

One in 5 jobs in Lancashire are in the public sector and so the council sees apprenticeships as an ideal lever to maximise the economic benefit of the public sector as an employer. As part of the commitment to helping young people access opportunities, the council also re- engineered their recruitment process and shared this good practice with District Councils, NHS and Police HR Managers.

For the council the apprenticeship scheme is a corporate priority, leading to recruitment of apprentices increasing from 16 to 268 over two years.

•• Black Minority Ethnic (BME) participation in the apprenticeship scheme reached 7% against a Lancashire BME community average of 5%. The apprenticeship scheme includes three employees with a disability.

•• The vacancy management process allows the council to offer front- line entry jobs (on merit) to those completing an apprenticeship. This helps retain a highly motivated workforce, enables career progression and talent management, and saves money in recruitment costs.

•• They have developed a ‘grow your own’ culture. They centrally

173 CLG (2008), ‘Tackling worklessness: A review of the contribution and role of English local authorities and partnerships’ We Can Work It Out 115

recruit up to 20 apprentices at a time, saving £31,000 for each quarterly intake - £120,000 per year.

•• As a result the county council has a very high retention and completion rate and over 90% of all apprentices appointed choose to stay with the council as they continue with their careers.

Future Horizons

Whilst recruiting to the apprenticeship programme the council realised that some looked-after children and NEET young people were not ready for an apprenticeship. They found it difficult to compete in the apprentice selection process and so the Future Horizons pre- apprenticeship programme was introduced to help address this problem. The project, in partnership with North Lancashire Training Group, provides employability qualifications, basic and life skills, career information and advice, and a structured eight week work placement (which can be extended) at the county council (or a partner organisation) – a stepping stone in securing an apprenticeship.

Councils must look beyond their own walls, however, if they are to maximise the impact in the communities they serve. They should use their existing powers to ensure that other public sector bodies, such as Primary Care Trusts, also play their part in local apprenticeship provision.

Local authorities must play an active role in developing the capacity of the third sector, as well as SMEs, so that it can offer more apprenticeship places. This could come in the form of taking on some of the administrative burdens or financial incentives to help meet some of the prohibitive costs that are a barrier to taking on apprentices.

The number of apprenticeship places that the public sector can provide directly is limited. However, the public sector has important levers over the private sector through contracting and purchasing. Councils can actively use their Section 106 powers to levy additional funds to tackle worklessness and to place requirements on developers around employment and training for local unemployed people.174

174 Audit Commission (2009), ‘Regeneration Worklessness: West Midlands Metropolitan Councils’ 116 We Can Work It Out

Procurement can also be used intelligently to generate job opportunities and apprenticeships for local people. Councils can influence third parties to develop initiatives to help tackle worklessness, such as working with local construction firms to develop apprenticeship programmes.175 For example, this may involve contract clauses requiring of contractors that five per cent of the hours worked should be delivered by new entrants on apprenticeships.176

We recommend that local authorities lead by example in providing apprenticeship places, skills training and local employment opportunities. They should also ensure that public agencies play their part, both directly and indirectly (through supply chain relationships). If necessary, we recommend that councils use their new legal powers under the “duty to cooperate” to enable this to take place.

CASE STUDY

Kent County Council and bolstering local businesses177

Kent County Council is using innovative methods to make it easier for smaller and local providers to bid for work. The Backing Kent Business campaign has seen a number of radical policies to develop local suppliers. All procurement opportunities over £50,000 are advertised on the South East Business Portal, to which suppliers can register and receive alerts. Along with the Federation of Small Businesses and partner, the council is providing support to local SMEs to bid and collaborate successfully in local government contracts, as well as widening the number of adverts on the regional portal.

Meanwhile, under Kent Highways Services and Kent Business, contractors Ringway and Jacobs are required to provide benefits that impact positively on the local economy. The contract with Ringway employs some 335 people who live in Kent and they are required to develop a Kent Construction Skills Training and Local Employment protocol to help address a severe shortage of skills in the construction

175 ibid 176 OGC (2009), ‘Promoting skills through public procurement’, p. 11. 177 Kent County Council (2009), ‘Kent Highway Services and Kent Business’; ‘Backing Kent Business – Procurement Limits; We Can Supply, Procurement: creating growth in the local economy’ We Can Work It Out 117

industry. Jacobs is required to deliver 95 per cent of its services from its Maidstone headquarters and KCC co-located offices. In addition, Ringway has worked closely with Rochester Young Offenders Unit to support their rehabilitation, including in some instances employment opportunities – this has resulted in a 90 per cent reduction in reoffending with those involved.

An apprentice scheme is currently being piloted in Thanet, funded under the council’s apprenticeship budget, which offers employers a contribution towards the employment of young people within the Building Schools for the Future (BSF) program. The first Local Education Partnership established under BSF is a joint venture between Kent County Council, Northgate Information Services, Trillium Land Securities, and BSF, which will construct around 34 secondary schools. The contract has an estimated capital spend of almost £600million, providing a boost to the Kent construction industry as well as local employment opportunities. As part of the deal, 400 apprenticeships will be offered to young people - a key wish of KCC Leader Paul Carter, who is keen to open up work-based training for school-leavers.

BSF ensures that partners are kept in business for the two years during the construction, and in the knowledge of this, KCC wrote a number of targets into the construction contracts. One of these targets is that for every £3 million of construction value they have to provide 2 apprenticeships, a significant amount given the worth of the contract. Additionally, the apprenticeships will available be specifically targeted at the areas that are receiving the investment. This is being done using a company called Kent Works through which opportunities are advertised.

Conclusions

This chapter has called for a new local authority-led economic and skills activism to stimulate demand for jobs, to create the environment for new dynamic business opportunities and to act themselves to forge a new era of municipal entrepreneurship.

Councils must also be at the heart of the local eco-system of third sector and wider public sector bodies, harnessing the potential of their communities by demonstrating leadership. They must do far more to ensure that the wider 118 We Can Work It Out

public and social economy is utilised to provide training and job opportunities for local citizens. The local government sector should increase direct provision of apprenticeship places and use their procurement policy to offer work- based experience and learning opportunities to their residents. We Can Work It Out 119

Conclusion

The economy has been dealt a severe body blow. It will not be easy to get our country back on its feet and when we do it must be stronger and more competitive. To achieve this will require nothing less than a transformation of our employment and skills system.

We must be leaner, which will require stripping out the complexity and bureaucracy of the system. We must be more responsive, both to the needs of citizens and business. We must intervene earlier and we must be more strategic, so that we can create and exploit opportunities for growth and prosperity.

This report has made a series of recommendations on how this can be achieved. We have called for a far more integrated approach to employment and skills, which will require devolved governance and local authorities working in collaboration so that they match functional economic sub- regions – the geography in which citizens live their lives and business tend to operate. This means democratically elected councils taking the strategic lead on employment and skills, rather than bodies at the regional spatial tier. It means local partners being freed up to work together on the front-line with pooled budgets and flexible funding streams. It means harnessing the capacity of all sectors and building the architecture of support around the individual.

Our ten key recommendations are:

•• That the Government streamlines national and regional skills bodies, radically consolidating any necessary strategic functions of the main skills agencies into the UK Commission for Employment and Skills – and devolving all operational functions to local authorities so that there is a more unified skills system, less bureaucracy and an end to accountability without power.

•• For adult skills, it should be possible to combine greater individual choice in up-skilling with a degree of democratic strategic ‘steer’ relevant to the economic development of an area. The concept of ‘skills accounts’ may be the best way to incorporate both these facets; empowering people to choose their preferred future skills and at the same time creating a greater likelihood of considered economic growth from place to place. While there should be more relative freedom of choice, we believe it is possible for individuals to be ‘nudged’ towards particular training options of high economic priority through thoughtful choice architecture and financial incentives, such as variable levels of public subsidy from course to course. Employers should be encouraged to contribute to the skills accounts of their employees and also be given financial incentives to do so, such as through match-funding.

•• The Government should undertake a feasibility study at the earliest possible opportunity into “Lifelong Learner Loans”, with detailed modelling to assess the loan amounts that could be offered for different qualifications based on the social and economic benefits that they are likely to bring. The Government should consider adopting a model for funding adult vocational skills similar to Student Loans, in which loans are provided and repaid through automatic deduction from the individual’s salary once it reaches a certain threshold by the Student Loans Company.

•• The Government implements a single and integrated programme for welfare-to-work, ideally with commissioning led by partnerships of local authorities operating sub-regionally. We recognise that steps towards full devolution may be required, such as co-commissioning arrangements, but recommend that this is regarded by both central and local government as a transition phase rather than end goal.

•• Councils should have a right to appeal against departmental decisions when local requests for devolution within the employment and skills system are ignored. A third party and impartial adjudicator, such as the most appropriate parliamentary select committee, should be enrolled in such cases to bypass institutional and cultural loyalties. A framework of fully transparent assessment criteria could then be We Can Work It Out 121

drawn up and evidence taken from both departments and the local authorities calling for devolved powers so that an informed decision could be reached.

•• ‘Personal advisers’ who develop ‘back-to-work’ plans with individual claimants should be given a far broader remit. These advisers, or teams of advisers should have access to individually-allocated budgets to commission health, childcare, and other services in conjunction with claimants themselves, so that more comprehensive and tailored support is achieved. These Personal Advisers would have to be integrated into the wider partnerships of all local providers and public agencies.

•• The Treasury leads an urgent programme of accounting reform which allows departments and their agencies, and we hope also local authorities, to adopt a comprehensive ‘invest-to-save’ approach – sometimes known as the AME-DEL arrangement where future savings can be brought forward to pump-prime early intervention programme expenditure. This approach should look across Whitehall for savings across the broader public purse in areas such as health and criminal justice to fund employment programmes.

•• Local authorities should lead by example in their employment and procurement policy to ensure better skills training and job opportunities for their residents. Councils should use their new legal powers, under the ‘duty to cooperate’, to ensure that other public sector partner agencies also amend their employment and procurement policies to better favour local job creation and training. 122 We Can Work It Out

None of these reforms will be easy for central government, which is resistant to “letting go” of the levers of top-down control. Many local authorities will find it a challenge to take on a new leadership role. But Whitehall must realise a more locally driven, responsive and integrated approach is needed to deliver on the nation’s ambition, and councils must not shy away from their true responsibilities. We need a new “place-led” skills system, with the individual firmly at the heart and local authorities taking a strategic lead to meet the current and future needs of business.

Time is not on our side. If we fail to transform the employment and skills system it will be costly. If we do not act, recession will leave a scar on communities and families across the country as we have seen in the past, and our future economic competitiveness as a nation will wane in the face of global competition. We have a window of opportunity to build economic prosperity and ensure that people are not excluded from the opportunities that this will present. We Can Work It Out 123

Appendix 1 Invest to Save methodology

Calculation of Updated Savings Through Invest to Save Approach

The 2007 Freud Review used complex modelling to predict savings that would be made by outcome based contracting.

The Review demonstrated that effective spending by the DWP on labour market policies could result in real reductions in benefit expenditure.

It estimated potential saving to the Exchequer of a 5% point reduction of people on benefits (one quarterly cohort form 2003) remaining on benefits from one quarter to the next that could be achieved by contractors, while maintaining existing ‘return to benefit’ rates. The Review calculated that this 5% point reduction would see a gross benefit saving of £225m for those on incapacity benefit, and £13.2m for those on JSA. An quarterly total (of these two benefit groups alone) of £238.2m savings.

We have taken this figure as an approximate annual potential saving of £952.8m for 2003/4.

Updated to take account of the 46% increase in benefit expenditure for 2010/11, this equivalent figure is £1.4 billion.

Our figures must of course contain a health warning that these are approximate, and based on predictions (from the DWP Annual Report). Moreover, subsequent changes to benefit structures such as the advent of the ESA may have an implication on figures.

However, we intend them to be an approximate estimation to give an indication of the scale of saving that could be made by an invest-to-save approach. A fuller and more sophisticated calculation should be made by government. 124 We Can Work It Out

Appendix 2 Acronyms

AME Annual Managed Expenditure BAN Business Angel Network BIS Business, Innovation and Skills CDFI Community Development Finance Institutions CDL Career Development Loan CLG Communities and Local Government DEL Departmental Expenditure Limits DIUS Department for Innovation, Universities and Skills DWP Department for Work and Pensions EPB Economic Prosperity Board ESB Employment and Skills Board ESF European Social Fund FE Further Education FEFCE Further Education Funding Council for England FJF Future Jobs Fund FND Flexible New Deal JCP Jobcentre Plus LGA Local Government Association LSC Learning and Skills Council LSP Local Strategic Partnership MAA Multi-Area Agreement NAO National Audit Office NAS National Apprenticeship Service NEET Not in Education, Employment or Training OECD Organisation for Economic Co-operation and Development RDA Regional Development Agency SFA Skills Funding Agency SLC Student Loans Company SMEs Small and Medium-sized Enterprises SNR Sub-National Review of Economic Development and Regeneration UKCES United Kingdom Commission for Employment and Skills YPLA Young People’s Learning AgencyA4e We Can Work It Out 125

A4e

A4e delivers frontline public services on an increasingly global basis. Operating from over 201 locations globally, A4e now operates in the EU, Middle East, Africa and Australasia. Our customers / service users are individuals, organisations and communities. Our funders are Governments and their agencies and departments.

Central to this work is the personalisation of front line public services. This means providing customers with a voice and choice over the way in which they interact, use and benefit from our services; increasing digitisation, so that customers are co-designers through innovations such as Web 2.0 technologies; and improving mobilisation so that customers can access the service at a time and place that integrates with their lives.

For more information, please visit www.mya4e.com 126 We Can Work It Out

Kent County Council

Kent, one of the UK’s largest shire counties, is a dynamic, diverse region with pockets of both wealth and deprivation. The challenge of this diversity is seen in Kents’s annual spending of £1.7bn on welfare benefits for people of working age. This exceeds the whole of the County Council’s annual budget for schools, adult social care, waste disposal, road maintenance and community facilities. Kent County Council is pioneering new approaches to tackling these issues.

We established the Supporting Independence Programme (SIP) which coordinates work across all sectors to help people lift themselves out of a life of dependency and achieve their potential, and the 14-24 Innovation Unit, working in partnership with the LSC, Connexions, schools and businesses to deliver real transformation in learning and skills for Kent’s young people. Already, these innovations have encouraged over 4000 students this year to take up a vocational course of their choice. In targeted areas those living in key SIP wards are 29% more likely to exit benefits than in other areas of the South East.

Through these exciting new approaches, Kent County Council will ensure that all Kent’s residents, including the most vulnerable, share in the county’s success.

For more information, please visit www.kent.gov.uk

SUPPORTEDSUPPORTED BY BY Unemployment with all its far-reaching, life-shattering consequences has reared its ugly head again. Each locality faces different, indeed unique, employment challenges and certain groups have been particularly badly hit.

The eco-system of services available to individuals, especially those most excluded from the labour market, must be personalised and tailored around them. This requires a level of flexibility, co-ordination and responsiveness on the front-line which local authorities and local delivery partners are best positioned to achieve.

This report criticises the complexity and dislocation within the employment and skills system and makes the case for more streamlined, integrated and devolved governance. Local authorities must be at the heart of the new era, working collaboratively, to orchestrate opportunities and drive economic growth. They must build economic resilience to weather future storms, whilst meeting the demands of learners and employers and breaking cycles of worklessness and dependency.

Price £15 . ISBN 978 1 903 447 85 7