The UK has made good progress toward full employment, thanks in part to the New Deal. But the rate of economic inactivity has changed little, with around 3.5 million people in receipt of incapacity benefit and income support. Furthermore, around two-thirds of job seeker’s allowance claims each year, some 1.6 million, are repeat claims, meaning many people remain stuck in a low pay, no pay cycle.
To achieve full employment over the next decade requires a fresh approach to welfare to work. This paper recommends that workless people be given a virtual budget – a personal employment account – instead of being enrolled in the current New Deal. This account, based on a similar initiative being piloted in seven states in the US, would be used far more flexibly for a far wider range of support. Claimants and their personal adviser would draw up a back to work plan using the individual budget to purchase services, such as training, or clothes for an interview.
The account could be used to encourage claimants to move into work quickly and cost effectively. They should be able to keep a portion of the money left in the account when they find work, and be paid some on entry to work and the rest after six months’ employment to encourage job retention. These accounts would give power to frontline staff and claimants, removing the straightjacket of the current focus on set processes and, instead, rewarding providers and claimants for the outcomes we want – sustainable employment and progression. It is this increased flexibility that holds the key to delivering full employment.