“It is just not working. What we’ve seen from the government is a failure to reform welfare.”
Ed Miliband, 27 November 2012
The background
Unemployment may be falling overall, but the number of people claiming out-of-work benefits for more than a year is at an all-time high.
The government’s answer is the Work Programme, which farms the the problem out to contractors – mostly private companies.
Firms can get up to £14,000 per job for the very toughest cases, but most of their fee is dependent on people staying in a job for three or six months.
This difficult but potentially lucrative business model was first designed in 2010 and big players like Deloitte, A4E, Serco and G4S were prepared to play ball.
But the launch of the programme in 2011 coincided with the double-dip recession, and rumours quicky began to circulate that Work Programme providers were finding it much tougher to find jobs for their clients than was expected.
Earlier this year performance data from A4E was leaked to Channel 4 News which suggested that the controversial company was failing to hit the minimum performance targets demanded by ministers.
Now the Department of Work and Pensions (DWP) has released the first official stats.
How bad is it?
The headline figures are pretty poor. Between 1 June 2011 and the end of July this year 877,800 people were referred to the Work Programme and only 31,240 people got jobs and stayed there long enough (three or six months) for the relevant company to get an “outcome” payment.
So that’s about 3.5 per cent of people over the 14 months that we know about finding a proper job. Over the first full year of the scheme the figure shrinks to a mere 2.3 per cent, and the government was hoping it would be more than 5 per cent.
DWP worked out minimum performance targets based on how many people they thought would get a job anyway without any help from the Work Programme. This was set at 5 per cent for three key types of jobseeker, and it got bumped up to 5.5 per cent to give the providers a bit of leeway.
To be clear, this was not a high benchmark. It was the bare minimum expected of the Work Programme contractors, with DWP saying it expected “that providers will significantly exceed these minimum levels”.
Effectively, the department was saying that if firms failed to hit these targets, they would actually be making the situation worse than it would have been if they had done nothing.
So the government wanted to see 5.5 per cent of 18-24-year-olds claiming jobseekers’ allowance in sustained work after the first year. They got 3.4 per cent.
DWP also wanted long-term jobs for 5.5 per cent of over-25s on jobseekers’ allowance. The actual result was 3.4 per cent.
And they wanted the same percentage for new claimants of employment and support allowance (ESA) – the payment for some sick and disabled people that replaced incapacity benefit. Only 1.5 per cent of people from this group found sustained work.
This last figure is especially poor and that is important, because getting people off ESA could be one of the keys to beating long-term unemployment.
The independent Centre for Economic and Social Inclusion (CESI) think-tank show us why with this graph:
The number of people on incapacity benefits has more than doubled since the 80s and they now outnumber considerably those claiming Jobseekers’ Allowance.
Making inroads into this group is a vital part of the government’s strategy for getting long-term unemployment down, but it looks like the Work Programme has failed to make any impact so far.
Referrals to the new ESA claimant group are very low and successful job outcomes in the hundreds rather than thousands. Jobs for other ex-incapacity benefit groups are non-existent.
CESI’s chief executive Dave Simmonds told us: “The number of ESA claimants is well below what was anticipated and DWP were scratching their heads about that, along with everybody else.
“If the Work Programme is going to tackle that big block, as well as the JSA claimants, who as we know come and go very quickly over time, it’s really important that they find out why.”
Is the economy to blame?
The challenging economic conditions have undoubtedly made things harder than anticipated for the Work Programme providers. When those minimum performance targets were set, the Office for Budget Responsibilty was expecting GDP to grow by 2.1 per cent in 2011. It actually shrank by 0.4 per cent.
But that doesn’t necessarily let the Work Programme providers off the hook completely.
CESI calculate that poor growth figures mean the government’s targets should be revised downwards, but only by about 15 per cent. The think-tank estimates that even adjusting for the economy, performance is still nearly 50 per cent below where it should be.
This basically tallies with the stance the government is taking today, with Employment Minister Mark Hoban stressing the economic challenges but adding that improvement notices have been sent to some providers asking them to come up with plans to up their performance.
On the other hand…
Work Programme providers get two years to try to help a job seeker, and these figures only cover the first 14 months, so there is still time for the percentages to improve.
Data for long-term job outcomes was always going to be unimpressive in the first year of this scheme. Any big programme will take some months to get going, and then you have to wait six months for many of the claimants to register as a success on the system.
This inevitable time-lag means following the fortunes of the first group of jobseekers to enter the system is probably a better way of getting an angle on what’s going on.
Of the 75,000 people referred to the Work Programme in June last year, a more respectable 8.6 per cent had found a long-term job within a year.
Figures published today by the welfare-to-work trade association Ersa show that 20,000 people are starting jobs every month and that number is rising month-on-month.
We don’t know how many of those people are staying in those jobs, but it’s an indicator that things could well improve in the future.
Ersa also claims that the Work Programme is more cost-effective than any other welfare-to-work scheme, costing the taxpayer just over £2,000 per job started, compared to nearly £7,500 under Labour’s Flexible New Deal.
That’s not an especially helpful comparison, as the £2,000 is just the beginning of the story for the Work Programme providers. They’ll get more money as people stay in work for longer, so that number is bound to rise.
But it does indicate that while the Work Programme has been a disappointment so far, it’s a less expensive disappointment for the taxpayer than other schemes proved to be.
Because this is payment by results, more of the financial risk of failure is borne by the private sector.
The verdict
Today’s figures are bad news for DWP, but Ed Miliband may be jumping the gun by writing the Work Programme off as a failure already. At the end of the day, we’re only one year into a two-year programme and it’s too early to make that call.
The scheme has undoubtedly had a very bad start, but there is some evidence that things are improving too.
However, the very poor figures for new ESA claimants suggests that some ill or disabled people are failing to get the tailored support they were promised.
If the government doesn’t make real progress with this group, it’s difficult to see how long-term employment can be turned around.
By Patrick Worrall
