The Big Picture – What Government should do and why they are doing the opposite

With Governments around the world now wedded to austerity, it’s easy to lose sight of what the overall goal of economic policy should be. At the moment, the goal seems to be ‘deal with the debt’, ‘pay down the deficit’ (whatever that means). We have stopped asking why austerity is necessary and kind of accepted it as a fact of life. Sure we don’t like it, but there’s no alternative right? Maybe we could raise taxes on the rich a bit more, or go after tax dodging more, but ultimately, that deficit must come down or the sky will fall in.

There is a general consensus about this right across the political spectrum, and – after being bombarded by over two years of propaganda – amongst the public at large. But should economic policy be all about ‘deficit reduction’ with only token nods to ‘policies for growth’? I think not. Thinking big picture, here are the three things most economists would consider the goal of macroeconomic policy to be (feel free to disagree):

1. Full employment – everyone who wants a job has one, or there is one job vacancy for every jobseeker (at the moment there is only 1 for every 5!)

2. Stable prices. This means a stable (not necessarily low) rate of inflation. Economists would define inflation as a general rise in prices. This includes wages. If prices rise more than wages, that is more a rise in the cost of living than inflation. So if wages and prices both rose by 5% per year, that would be considered quite high inflation, but if it was stable at 5%, this would not be too much of a problem, because households and business could make decisions about the future with more confidence.

3. A highly productive economy. The economy is producing close to the maximum it can achieve with the resources it has available (while not trashing the environment).

You would have thought that our politicians would be advocating policies that contributed towards those aims, but if you look at what austerity is actually achieving, it seems to be the exact opposite of the three points above:

•  High unemployment
•  Unstable prices – first prices rising quickly (but not wages), then falling back to the point where deflation becomes a real possibility.
• Falling productivity – the wealth produced per hour worked is falling.

So why are our policy-makers still dead set on austerity? There are two reasons I can think of. Either could be true (or indeed a combination of the 2):

1. They know austerity doesn’t work, but the people who they really serve (those at the top) do quite well out of austerity. It increases inequality, thus ensuring the top 1% have a greater share of the (albeit smaller) pie.
2. They are morons who honestly don’t know any better, either for ideological reasons (most Tories), or just pure ignorance (Nick Clegg, Danny Alexander).

At the moment I tend to believe option 2, but as more data comes in in 2013, if no change in policy is forthcoming, then option 1 will start to look more likely.

Conservative Party Steps Up Its Attack on the Victims of Austerity

George Osborne made a centrepiece of it in his Autumn Statement speech in Parliament 10 days ago. He wanted to conjure up the image of rewarding hard-working ‘strivers’ getting up early to go to work every day while hitting work-shy ‘scroungers’ who lie in bed all morning with the curtains closed. He was widely derided for it this at the time, particularly when it was pointed out that 60% of the people losing out from the real term cuts to working-age benefits were actually people in work.

I was somewhat surprised therefore (perhaps naively)  to learn that Tory Party Chaiman Michael Green (AKA Grant Shapps) found Osborne’s attack so inspiring, he’s decided to make it a central plank of his election strategy for fighting marginal seats. They are putting out these targeted banner ads:

The strategy is pretty straightforward then. Classic divide and rule, pitting those who are working against those who – in the vast majority of cases – are not working through no fault of their own. The Government have had some success in this strategy to date, over public sector pensions and the £26k benefit cap, but judging by the comments BTL here, people don’t seem to be buying this latest attack so far.

Shapps has coincided this campaign with a call for people to ‘have their say’ about the Government’s welfare policy, by launching an online petition. Judging by the wording of the questions, this doesn’t seem to be an honest attempt at gathering people’s view, rather an attempt to affirm his party’s long-held prejudices. Despite this, I would urge everyone to complete it, to let Shapps know exactly what you think of him and his shameful campaign.

Stephanie Kelton on Modern Monetary Theory

Here’s a vid of Prof. Stephanie Kelton of the University of Missouri, Kansas City appearing on Russia Today’s “Capital Account”, in order to explain Modern Monetary Theory (MMT). Capital Account is a good show and hosts a lot of interesting guests that don’t get much airtime on more mainstream TV. Lauren Lyster is the host and her team seem to do some decent research on the guests, so the interviews are always informative.

MMT offers the most coherent alternative to austerity that I have come across, and Kelton is very good at explaining her ideas in an easily accessible way. She tweets as @deficitowl on Twitter. Anyway, give it a watch.

OBR Chairman Kills Rationale for Austerity in 1 Minute

Yesterday, OBR Chairman Robert Chote appeared before the Treasury Select Committee to discuss the OBR’s forecasts for the Autumn Statement. About an hour in, Conservative MP Brooks Newmark asked Chote what would happen if Britain lost it’s AAA credit rating. Remember that for the last 2 and a half years, George Osborne has based his whole economic strategy upon preserving our AAA rating – to lose it would apparently mean higher interest rates, less investment, lost jobs. But here’s Robert Chote responding to Newmark:

“Well it’s not entirely clear that that [a downgrade] would be providing any new information to the markets that they hadn’t already managed to deduce I think from the information on which presumably the credit ratings agencies would have drawn their conclusions. I think we’ve seen other countries suffer that, and it’s not had an obviously noticeable impact on market views. Obviously, the notion of how sensible it is to view this as a change in default risk, when the notion of default risk for a country that basically can print its own currency, is a slightly debatable premise to begin with.“

Here’s the video. The relevant bit starts at 10:31:30:

http://www.parliamentlive.tv/Main/Player.aspx?meetingId=12062

A downgrade of our credit rating downgrade now looks inevitable and apparently Osborne’s colleagues in the Cabinet are urging him to do a 180 and start downplaying the consequences of a downgrade.

The way this story is changing reminds me a bit of the last Labour Government’s changing story on the invasion of Iraq. First they attempt to scare us into accepting some awful policy (WMDs or Greek style bankruptcy), then they change it to a story about human rights (or now, changing the ‘benefits’ culture). Finally, once the policy is embedded, the story becomes “If we turn back now it would be a disaster”.

So from Robert Chote, we now know losing our AAA rating probably won’t much effect interest rates. We know the mantra “There’s no money left” is idiotic (we have our own currency). We also know that changing course would not lead to disaster as Osborne contends. At the end of the video, Chote also says that an increase in Government borrowing wouldn’t necessarily have any impact upon market expectations either. So what rationale for persisting with austerity remains?

The Work Programme Part 3 – Payment by Results and Unpaid Work Experience

“Payment by results”. It sounds good. Firms only get paid if they do well, so there is a powerful incentive for them to act in the best interests of the individual. Something is going very wrong though. About £4 in every £5 paid out to Work Programme providers is not being paid because a ‘result’ has been achieved. It is being paid for an ‘attachment’ to the Work Programme i.e. when an unemployed person starts the programme. Only £1 in £5 constitutes ‘payment by results’, and even then as we have seen, the value of these results is somewhat dubious.

The Government has actually taken these poor results and tried to spin it into a story about value for money for the taxpayer. Responding to the dire figures published in November, Work and Pensions Secretary Iain Duncan Smith said:

“I think we are on track. Payment by results is about saying the taxpayers need not foot the risk.”

In other words, he’s saying that even if the Work Programme providers performance is abysmal, it’s OK because the taxpayer only pays for results. Leaving aside the fact that that is just not true, as we’ve already seen, the idea that all that matters is value for money for the taxpayer is frankly bonkers.

We have an unemployment crisis in this country and every day we are forgoing millions of pounds in lost income because we have millions of people unable to find work. We are not making use of all these people’s skills and experience while they languish on benefits through no fault of their own. The idea that it’s OK that we are not finding work for these people because the taxpayer is not on the hook is crazy.

The Future Jobs Fund was scrapped by the Government because it cost too much. A cost of over £7,000 per job is widely cited, but a recently completed evaluation of the programme came up with somewhat different numbers. The programme was found to have a net cost to the Exchequer of £3,100, but provided a net benefit to society of £7,800 per participant.

The idea that the only thing government’s should be concerned about is value for money, that cheaper means better is just illogical. It’s what society gains from spending by the government that really matters. The Work Programme may be cheaper than previous schemes (debatable I think), but the return on the government’s investment in the Work Programme looks like being very low (and maybe even negative) at this point. That makes no sense at all. Far better to spend more on a programme that will generate a greater return for society.

Payment by results is supposed to incentivise excellence, but achieving excellence is hard, even more so in an economy where there is a shortage of jobs. So instead of promoting excellence among Work Programme providers, payment by results seems to be promoting cheating or corner cutting (read part 2 for more on this). The result of this is that, far from creating an effective, unemployment reducing programme, it has created one which is barely (if at all) better than nothing.

Knock-on effects

Going hand-in-hand with the Work Programme appears to be the beginnings of a worrying trend in the labour market –  a growing casualisation of the workforce and – even more worrying – the rise of the unpaid work placement.

Casualisation

Casualisation, manifesting itself in the form of temporary, zero-hour or self-employment has exploded to such an extent that 3 million people now say they are underemployed, up by 1 million since the economic downturn began in 2008. So while Coalition ministers crow about falling unemployment, and 1 million new private sector jobs, it’s right to question just what sort of jobs they are, and what sort of precedent does this set for the future?

That’s not to say there is no place for zero hour contracts and temporary work. The key though is that there is a strong backstop in place to catch those who fall out of the system. Temporary work or zero-hour contracts are not so bad if there is a strong welfare state to fall back on (or a guaranteed state-funded job as I would like to see), but at the same time as the labour market remains weak, the Government are also weakening the welfare state at the same time by cutting working age benefits in real terms. Done in the name of deficit reduction, it’s the ultimate false economy. Cutting the incomes of those who spend most of their incomes mean less sales for businesses and less income overall. As Paul Krugman says:

“Your spending is my income, and my spending is your income. So what happens if everyone simultaneously slashes spending in an attempt to pay down debt? The answer is that everyone’s income falls — my income falls because you’re spending less, and your income falls because I’m spending less. And, as our incomes plunge, our debt problem gets worse, not better.”

Unpaid Work Experience (Or Workfare)

Wrapped up with the Work Programme has been the rise of mandatory unpaid work experience. Work experience has gained a lot of negative coverage in the media in recent years. A lot of this has focused on schemes outside of the Work Programme, but it is less known that it is very common for Work Programme participants to be mandated to do unpaid work experience.

The Work Programme uses the ethos of the ‘black box’ approach. This means providers have the freedom to do whatever they feel necessary to help a Work Programme participant get back to work. Often, it seems, this takes the form of unpaid work experience. This is mandatory. If participants refuse to take part, they can have their benefits sanctioned.

This practise of sending benefit claimants is growing in scope. It was recently announced that ESA claimants (those deemed unfit for work, but placed in the work-related activity group) can be mandated to do unpaid work experience for a time period without limit.

This phenomenon of unpaid work experience has now become so prevalent that private firms, with the collaboration of Jobcentre Plus and the DWP are now advertising ‘job vacancies’ that are actually unpaid placements. Here’s 2 examples:

WORK EXPERIENCE PLACEMENT WITH A POTENTIAL JOB-ARGOS- Speak to an adviser about YLY/37795

— YARDLEYJCP (@YARDLEYJCP) December 7, 2012

A tweet by #ShrewsburyJCP says 'We advertise paid employment through Universal Jobmatch ' hmm what is this then? : https://t.co/AR8EqAxA 😀

— David Smith (@davesmith40uk) December 10, 2012

There is a real danger I feel that this can become so normalised, that it becomes standard practise for certain employers to only hire on a ‘try before you buy basis’. This is just wrong in my view, but it just seems to have almost passed unnoticed in the press. It just shows how bad things have got when things most people would usually balk at just become the new normal. All decent people should oppose this in the strongest terms.

This post has strayed somewhat from its original theme, but just to try to draw the 3 parts of this series together. Here are the key points:

• The Work Programme is an expensive failure. If we didn’t have a Work Programme, we would have expected more long term unemployed to have found work.
• Work Programme providers are providing very little of value for the millions they are being paid. Instead, they are using a number of techniques to extract additional cash from the public purse.
• Payment by results just doesn’t work
• The Work Programme is giving rise to all sorts worrying trends, notably unpaid work experience.
• It seems to be becoming normal for employers to expect jobseekers to work for them for free for a period before offering them a paid role. This can only displace paid employees. It needs to stop.
• Real terms benefit cut and benefit sanctions are pure false economies. They will ensure unemployment rises, not falls and will bequeath a smaller economy than would otherwise be the case. It will end up costing us all more.

The Work Programme Part 2 – Having a laugh at the public’s expense

In part 1, I discussed the DWP’s recent release of performance data for the Work Programme. Despite quite modest targets for year 1, across the board, Work Programme providers are failing. In this second part, I want to  give a few examples of why I feel the already dire performance figures to date create a misleading picture of how much added-value is actually being generated by the firms contracted to help individuals on the Work Programme. I think the reality is actually much worse than is generally thought.

Before I start, I just want to make clear that I am not picking on a particular provider here. Although firms like A4E have been singled out in the media for a large amount of criticism, the performance of providers across the board is poor, and what follows seems to be taking place within a number of providers.

The following examples appear to be evidence (although anecdotal), that Work Programme providers are adopting a number of techniques to maximise their revenue without actually investing time and effort into individual jobseekers themselves. To me this constitutes a misappropriation of funds, but I don’t expect DWP to investigate any time soon. In one case as you will see, the transfer of funds from public to private without any value being added by the company is officially sanctioned.

Tricks of the Trade

One of the benefits of living in the age of the internet is that people who before found it almost impossible to get their voices heard can now do so. Through blogs and social media, stories are being told about the Work Programme from the people actually referred onto it. The same stories seem to come up again and again. Here are three of the most common ones.

1. Already found a job? Just sign these forms

This technique is actually officially sanctioned in certain instances by the DWP, and is written into the Work Programme guidance (chapter 4) which can be downloaded here. When someone is referred to the Work Programme, there may be a gap of a couple of weeks before that person is officially ‘attached’ to the Work Programme.

If you look at paragraphs 71 to 76 of the guidance it explains how if a claimant finds work between referral and attachment, the provider can try to attach the individual before they start the job. In practice, this means meeting with the individual and completing some paperwork. If they are able to do so (and perhaps provide them with some token help like a bus pass or vouchers for work clothing), then they are eligible to receive the outcome payments should that person remain in work. This could earn the provider several thousand pounds on top of their £400 or £600 attachment fee.* Kerching!

This ruse also applies to people who actually are on the Work Programme. The claimant may have found work themselves after finding the Work Programme support poor. Here’s and example of what I’m talking about from this blog:

“They rang me up today to check how I was doing,” he wrote, “and when I told him I had a job he seemed to perk up a bit. He said he’d give me £100 “petrol money” if I signed some paperwork to let him contact the DWP.”

To me, this sounds like a bribe, but DWP seems absolutely fine with it. I suppose they term it “in-work support”.

Now in cases like this, the provider may argue that it was the help and support they provider that helped the person find work, but how sure are we that this is the case? A lot of people’s experience of the Work Programme seems to be a monthly 20 minute face-to-face meeting with the provider, and maybe the odd phone call. Not the individually tailored, bespoke support we were promised. Which brings us onto the related trick 2.

2. Creaming and Parking

Creaming and parking is the phenomenon whereby providers identify job ready claimants (they may be graduates or other high skilled people), and focus all their attention on them, while ignoring, or providing very little support to those who are harder to help. They still receive their attachment payment for those they ‘park’, and if any of these people get jobs anyway (and the law of averages suggests some will), then all the better, they can apply trick number 1 and claim the outcome payment. Research commissioned by the DWP highlights that creaming and parking may be an issue (see here), saying:

“Some of the reported  experiences of participants and providers suggest, at face value, a degree of creaming and parking; for example, many providers openly reported seeing their most job-ready participants more frequently than those with more severe barriers to work.”

So it seems to be a case of help the ones who would probably find work easily anyway and ignore the rest until they (hopefully) find work on their own.

3. Working Tax Credits are a provider’s best friend

Hat tip to the Johnny Void blog for alerting me to this, but it seems that Work Programme providers seem to be encouraging claimants to declare themselves self-employed in order to trigger a job outcome payment. Apparently, if a person works self-employed for over 30 hours a week (although in reality much less), but earn under a certain threshold, they can claim working tax credits of up to £50 per week. This is only about £20 less than Jobseeker’s Allowance. A person doesn’t need to earn anything to receive WTC, but would only need to work a few hours a week to earn as much as JSA. I don’t know how prevalent this is, but it seems that one provider in particular may be making the most of this apparent loophole.

So these are a few of the wheezes Work Programme providers seem to be using to inflate their job outcome figures (which in part 1 we saw are still woeful). These practices and others like them seem to be widespread and not just used by one provider. Added together, they sum to a large amount of (admittedly anecdotal) evidence that Work Programme providers are delivering even worse value for money than people think. The whole programme seems to amount to nothing more than a giant rip-off, a transfer of huge sums of public money into a relatively small number of private companies and individuals, in return for very little of value. Some people it seems, are having a laugh at the public’s expense.

This was originally intended to be the 2nd of a two part post on the Work Programme, but I’ve now realised I need a 3rd part to explore why we persist with the payment by results model despite its seemingly obvious failings.

*H/T again to this blog post for drawing my attention to this practice

For more information on problems with the Work Programme, and the Government’s welfare policies in general, I recommend following @boycottworkfare and @johnnyvoid on Twitter.

The Work Programme Part 1 – Worse Than Doing Nothing

This is the first of a two part blog on the Work Programme. This part looks at this week’s data release, and part 2 will look at some of the tricks Work Programme providers seems to be using to ‘enhance’ their figures.

This week, the DWP finally released the first performance figures from the Work Programme, the Government’s flagship welfare to work programme, and boy were they poor. In the first 12 months of the programme, just 2.3%* of people referred to the Work Programme have found work which lasted for at least 6 months.

At the outset, the DWP estimated that if the only support long term unemployed people received was the standard Job Centre Plus offer (basically access to job points and fortnightly signing meetings), then 5% would find sustainable work anyway. The Work Programme providers had a minimum performance target of 5.5%. DWP expected this to be exceeded, but in fact every single provider has failed to meet this contractual obligation. What this suggests is that the Work Programme is worse than doing nothing. Read that again. Worse than doing nothing.

As you might expect, the Government and the providers themselves tried to put a positive spin on the numbers, arguing that since the programme started, 207,000 had moved into work at a cost of £2,000 per job, and over half of participants had had a break in their benefits since starting the programme. Ian Duncan Smith in particular likes to think if someone has come off benefits, they must have moved into work, but lets just look at those figures again.

878,000 people have been referred to the Work Programme, and 207,000 (according to the providers) have had at least one job start since starting the programme (24% of those referred). And yet around half (which equates to almost 450,000) have had a break in their benefits. So less than half of those coming off benefits actually found work. Is the Work Programme about finding people work or getting people off benefits? Providers seems to be more successful at the latter than the former.

If we take the 207,000 figure at face value, does this signify success as is being suggested? We know that in the first 14 months of the programme, 31,000 people moved into work and stayed there for at least 6 months (or 3 months in the case for former ESA claimants. To do this, they must have moved into work by the end of Jan 2012. ERSA (the industry’s trade body) helpfully break down job starts by month, so we know that up to the end of Jan 2012, just over 64,000 individuals started a job, but of these ‘jobs’ only 48% of them lasted long enough for the providers to claim a job outcome payment. It’s probably slightly worse than that because providers can still claim a payment if an individual gets a job, leaves it and starts another. So if someone does 3 temporary jobs lasting 2 months each, the provider can claim that as a job outcome. What sort of jobs are they that so many last less than 6 months? It seems that the definition of ‘job’ seems to be changing. I’ll explore this a bit more in part 2.

Looking at the Government’s chief argument then – value for money, while the headline number is £2,000 per job, if you break that down, it’s about £14,000 per job sustained for 6 months or more. Let’s not forget too that of the over £400m paid out to providers in the first 14 months, at least £350m took the form of ‘attachment’ payments – the £400 or £600 providers receive per participant just for accepting them on the programme. Ultimately though, the value for money argument is spurious, because as we’ve already seen, if we had spent nothing on welfare to work programmes, we would have expected more people to move into work. Once more then, the Work Programme is worse than doing nothing. The Work Programme seems to be very good at shifting public money into private hands, but less so at the job it’s apparently designed to do – finding work for people with complex needs.

That’s Part 1 then. Part 2 will go into more detail about the problems with the programme, why it’s such awful value for money, and what an alternative might look like.

*UPDATE: Via Twitter, @boycottworkfare points out that the performance figure for the first 12 months is not 2.3%, it’s actually worse, only 2.1% See this Fullfact post for an explanation.

Sources

ERSA – The trade body for Work Programme providers

DWP ad hoc analysis of numbers of individuals starting Work Programme and then having a break in their claim. (As an aside, I have a real problem with the DWP’s use of ‘ad hoc analyses’. They seem to be being used to muddy the waters about what is really happening, the opposite of what statistics should be used for. My very first blog post was on this topic. Read it here.)

DWP official Work Programme statistics