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Section 3: (iii) Financial Incentives
The challenge
94. Financial constraints and opportunities determine, to a very large extent, the choices people make. This is as true for young people who are not in education, employment or training just as it is true for young people weighing up the relative financial incentives and disincentives in undertaking study in either further or higher education. A fear of accruing debt through undertaking education is a prominent characteristic of young people in the NEET group. 68 Recent research from England 69 indicates that although the NEET group understand the benefits of staying on to improve their qualifications, a relatively high proportion opt to look for work.
95. We also know that the benefits system influences the decisions of many disadvantaged young people after they have left school. Research 70 and anecdotal evidence tells us that losing benefits, particularly housing benefit, acts as a disincentive for several of the NEET sub-groups to move out of NEET status. At the very least, many benefit clients have the perception that they would be worse off working. 71 As the Employability Framework makes clear, we will work with the UK government on its proposals in the Green Paper A new deal for welfare: Empowering people to work.
Ensuring that learning is a financially viable option
96. Although there are many financial support mechanisms underpinning the range of education, employment and training options available to young people, feedback from stakeholders, including young people themselves, suggests the current system is too complex, confusing and hard to navigate. The Executive has made significant progress to improve the information, advice and guidance available to potential learners 72 and will continue to work closely with stakeholders to develop this.
97. The student support system in Scotland, Education Maintenance Allowances ( EMAs), Individual Learning Accounts and UK measures such as introducing a national minimum wage rate for 16-17 year olds all contribute to making education, employment or training more accessible for young people. But the fact remains that we need to tackle some of the anomalies within the financial support system, and to employ a more comprehensive set of levers to influence the behaviour of young people who are NEET.
98. The current disparities between payment levels on national training programmes and education schemes influence progression choices in ways that may not always be helpful. For example, young people leaving GR4W for a college option may face a reduction in income because the training allowance is worth more than the financial support they would receive in FE. It is worth noting that the highest proportion of outcomes from GR4W is into direct employment. Although this appears as a positive step, as the progressions onto Skillseekers are low, we can assume that a high proportion of these job outcomes have limited levels of in-work training, with the risk that these young people have limited development options in the workplace and become caught in a series of low paid, low skilled jobs and the likelihood of episodic NEET status. 73
99. In England, the UK Government has taken steps to tackle these issues through its review of financial support for 16-19 year olds, published alongside the 2004 budget. The revised system seeks to simplify administration and to improve accessibility. March 2005's pre budget report introduced a wide range of new mechanisms designed to deliver parity in financial support for those in non-advanced education and unwaged training (named Government training programmes). These include:
- the removal of the Minimum Training Allowance and extension of Education Maintenance Allowances ( EMAs) to 19 year olds in non-advanced education and unwaged training; 74 extension of Child Benefit to families of those young people engaged in these activities; changes to Child Tax Credit and Income Support Regulations in support of the age extension;
- the allocation of £60 million over two years to pilot Activity Agreements and an Activity Allowance to 16 to 17 year olds not in employment or learning in eight pilot areas from April 2006;
- the allocation of £80 million over two years to pilot negotiated Learning Agreements for 16 and 17 year olds in work with no training in eight pilot areas from April 2006.
100. This represents an attempt to introduce parity within the financial support framework whilst making it more transparent and comprehensive. The issues which it tackles are also pertinent north of the border and the Executive will examine the feasibility of delivering financial parity across all types of non-advanced education and unwaged training participation for 16-19s in Scotland.
101. In the same way that the strategy recommends an approach which sees ' NEET-proofing' of mainstream policies in the pre and post-16 systems, there is clearly a case for probing what impact mainstream financial support and incentive measures are having on enabling young people to engage in education, employment or training and so reducing the size of the NEET group.
The 'something for something' approach
102. EMAs represent the government's response to evidence which showed that finances are the main barrier to young people staying in and/or furthering their education. Originally piloted in Scotland in East Ayrshire, Glasgow, Dundee and West Dunbartonshire, and now rolled out nationally, EMAs provide a weekly cash allowance (of up to £30) linked to school or college attendance, combined with a series of bonuses linked to retention and achievement.
103. EMAs - earning while learning - are based on a principle of providing financial reward to young people in exchange for their participation in a pre-agreed activity (in the case of the current EMA scheme, attendance at school or college with bonuses linked to achievement as set out in a learning agreement). Their demonstrable success in meeting their stated objectives suggests there is merit in exploring the extension of this principle to a wider range of young people, in a wider range of settings than simply school or college. 75 The Activity Agreements to be piloted in England - where young people who are not in school, not in work or lacking basic skills will sign contracts agreeing to participate in education or receive skills, including life skills, and pre-vocational/vocational training in return for financial support - will test this out. We will undertake a similar pilot exercise in Scotland to test out the potential contribution of such a scheme.
104. EMAs have proved to be effective in achieving their primary objectives of increasing participation and retention. Evidence from evaluation of the pilots in Scotland found a 9% increase in participation in post-compulsory education, particularly amongst low-income families and an increase in retention, reducing the number of winter leavers and augmenting the numbers completing S5. There is also evidence which clearly illustrates increased attainment amongst the EMA group. 76
105. While EMAs have the primary policy objective of increasing participation and retention, an analysis of EMA related reductions in the NEET group allows for an indication of the potential long-term impact of achieving these primary objectives. It would enable the policy to be tested against a measure that reveals whether EMAs are enabling at risk young people to enter education, employment or training or whether they are simply deferring a ' NEET' outcome for those same young people.
106. Research from England showed a 2.4 percentage point reduction of NEET among those eligible for EMA and 1.3 percentage point reduction among all 16 year olds as a direct impact of the introduction of their EMA pilots. 77 In Scotland, during the time of the East Ayrshire pilot, the proportion NEET increased both in the pilot area (East Ayrshire, where EMAs had been introduced) and the control area (North and South Lanarkshire, where EMAs were not introduced at that time). Assuming no other influences, the EMA pilot in East Ayrshire is associated with a lower increase (by 1.2 percentage points) in the number and proportion of school leavers NEET, compared to the control area.
107. In examining the efficacy of mainstream financial supports, we should not overlook the importance of small-scale discretionary funding to allow organisations that provide an employability service to purchase the services and products which are needed to progress clients towards employment and which are not immediately available through an alternative source of funding. Research has highlighted that such flexibility is particularly effective in working with the most disadvantaged individuals. 78
108. Better understanding of how financial support mechanisms - both at individual level and at the level of examining how financial supports interrelate - influence the choices made by young people who are NEET or at risk of becoming NEET, is critical if we are to ensure resources can be more fairly, and more effectively, targeted.
ACTION: FINANCIAL INCENTIVES
Ensuring learning is a financially viable option:
(i) The Scottish Executive ( SE) will review the financial support arrangements for 16-19 year olds in Scotland, in the light of the UK Government's recent review, addressing the specific issue of parity for young people in education and those in vocational training.
(ii) The SE will consider ways to promote progression from informal to formal learning and to improve training for those in low-paid low-skilled work, specifically through the development and piloting of Activity Agreements and Allowances for 16/17 year olds who are NEET and Learning Agreements for 16 and 17 year olds in work without training.
(iii) The SE will commission further research to test the impact of EMAs on changing outcomes for young people at risk of becoming NEET and will assess ways in which to maximise the potential of EMAs to encourage retention, attainment and progression for young people in sub-groups who are known to be at risk of becoming NEET.
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