As the Labour Government enters the second year of its second Parliament, where is its welfare to work strategy going? What needs to be done to keep the New Deal programmes focussed on the most pressing needs of unemployed people and the requirements of the labour market?

In Working Brief issue 135, we published ‘Ten challenges facing welfare to work’. These are conclusions reached from a lengthy engagement with New Deal design and performance monitoring; we think significant changes are required.

In Labour’s first months of office, the design and launch of New Deal captured politicians’ imagination and excited the media. But fashioned in opposition in late 1995 it reflected the political pre-occupations of the party during the early 1990s. Youth long term unemployment had topped 400,000 in April 1994 and, although the claimant count had started on a long term and decisive downward trend, the image of mass unemployment still held sway. Both the labour market and the political landscape have changed dramatically since then.

Today claimant unemployment has reached historically low levels whilst many sectors and regions are experiencing acute problems with recruitment. The challenge for Government is not dealing with mass unemployment but the extent to which growing numbers of people have become very detached from the jobs market and are economically inactive.

Welfare to work programmes have to face two problems: they need to be re-tuned to help a population group that face many barriers to work and they have to succeed during a period of relatively weak jobs growth. The clients are harder to help and there's no booming economy to help out. What’s worse, weak jobs growth prospects are an ideal alibi for welfare to work organisations that are poor performers. That’s why performance on New Deal has to improve dramatically.

Firstly, there should be one New Deal for all potential clients. But it should be highly flexible and attuned to participants’ and employers’ individual needs - not a monolithic programme. Funding should be flexible too - more money is needed in areas of low employment growth and for clients that have the furthest distance to travel.

Secondly, there needs to be a high level political goal to drive every agency. Nothing quite focuses the mind as a really hard political target - for example the first manifesto pledge to help 250,000 New Dealers aged 18-24 into work was an extremely effective incentive. Targets should be especially ambitious in areas where ethnic minority employment levels are lowest.

Thirdly, the Government has to encourage more innovation. There is no shortage of impressive performance - as this year's annual New Deal Innovation Convention in June will demonstrate. Much of this innovation is achieved despite the funding and programme rules for New Deal. Originally the Innovation Fund for New Deal was conceived as a ‘venture capital’ vehicle that would encourage bold leaps of imagination and - most importantly - avoid the traditional Government practice of punishing risk-taking that fails to pay-off.

Hundreds of organisations around the country have experimented with innovative approaches to employer engagement and to addressing the specific needs of their client groups. Whilst many of these have been in the voluntary sector, many private organisations have been to the fore. Why? Not because they have a closer affinity with employers, but because they are familiar with risk taking and can sustain failure more easily.

Innovation has also faltered because the lessons are not being learned. New Deal policy, design and performance is not being systematically guided by the vast pool of research, evaluation and best practice intelligence. The sheer volume of knowledge available is part of the problem: Government and delivery organisations need clearer signposting to what works, why it works and whether it can be replicated.

Welfare to work throughout this decade will only flourish - and place millions into work - if the lessons of innovation are collected, structured and disseminated.