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The Work Programme: built on shifting sands?

30 January 2012 - Ian Mulheirn

With unemployment on the rise, on Friday the Department for Work and Pensions released new estimates for the number of people they expect to go onto the Government’s flagship back-to-work scheme, the Work Programme.

Unsurprisingly, given that economic growth has stalled, the figures show a dramatic rise in the  number of people it thinks will come onto the scheme compared to the estimates on which Work Programme contractors’ initial bids were based a year ago.

This table show how the ‘flows’ (the number of people who will enter Work Programme) for each client group have changed from the time of the invitation to tender, in late 2010, and now:

Clearly providers are going to have to find work for many more people than they expected when they submitted bids to run the scheme. That’ll be challenging in the current economic climate.

But as well as the higher total numbers, what’s interesting about these figures is the timing of this wave of people now expected to enter the Work Programme. A year ago it was assumed that, since the economy was coming out of recession, on-flows would start high in the first year of the scheme and then fall steadily each year.

That fitted with a payment structure designed to ease providers’ cash-flow troubles: they get a fee of either £400 or £600 per person coming through their door in the first year, regardless of whether that person ultimately gets a job. This ‘attachment fee’ then dwindles over years two and three.

From year four onwards, providers get no money for a referral and all revenue is based on achieving sustained jobs of six months or more. Of course, that is fine when you anticipate the economy to be booming in years three, four and five, but it creates problems when the employment outlook deteriorates.

The new flows will mean about an additional £107m for providers in attachment fees for the seven groups identified in the invitation to tender. But since the number of jobseekers is rising fast, the amount of core funding for each jobseeker is actually falling by around 8%.

An unfortunate side effect of the current payment structure is therefore to cut the core funding per head for the programme just at the point when more people need to use it. If DWP were to restore the average level of funding per head, they would need to add about 10% to attachment fees in years two and three. That would mean finding another £60m for the scheme.

But whichever way you cut it, providers’ biggest concern right now will be about the prospects for getting outcome payments by getting people into jobs. Unfortunately, how to generate strong economic growth and millions of new jobs is the multi-billion dollar question. And, to paraphrase Vince Cable, the growth strategy is above Iain Duncan Smith’s pay grade.

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