National Audit Office report – the introduction of the Work Programme

The National Audit Office (NAO) has published a report on the introduction of the Work Programme. Its key findings include:

  • Department for Work and Pensions (DWP) has introduced the Programme in just over a year and while its quick introduction has had benefits it has also increased risks.
  • The NAO and the DWP take a different view about the best estimate of likely performance. The NAO’s estimate that 26 per cent of the largest group of claimants (Job Seeker Allowance claimants over 25 years) will achieve successful job outcomes compared with the DWP estimate of 40 per cent.
  • On that basis the NAO believe there is a “significant” risk that DWP’s overall performance assumptions are “over-optimistic” in expecting that 36 per cent of referrals will be placed in employment.
  • Providers have offered even higher levels of performance – on average 38 per cent – and provided contract discounts of 6 per cent against the maximum price set by DWP with the NAO concluding that it is possible that one or more prime contractors will get into “serious financial difficulty”.
  • There are uncertainties about assumptions underlying the Programme. For example, it is assumed that non-intervention (i.e. job outcomes that would have occurred without the Programme being in place) is consistent across the country meaning that providers in areas of high unemployment will find it difficult to achieve nationally set targets.
  • A key uncertainty is the future state of the economy which has a major bearing upon the Programme’s capacity to achieve its objectives. DWP’s assumptions are based on the economic conditions in 2001 to 2008 which were more favourable than they are currently, with future predictions difficult to make.

The NAO conclude that while DWP has made considerable effort to learn the lessons of previous welfare to work schemes it is too early to judge the success of the Work Programme but that “the speed with which [it] has been introduced has involved the acceptance of risks and curtailing of safeguards that potentially will have a bearing on the Programme’s success or failure.”

The Government has put a lot of faith in the Work Programme as the flagship welfare to work scheme and a centre piece of their overall public reform agenda. They are especially proud of the fact that the prime contractors are paid according to the results they produce and that it took just over a year to design and procure the Programme and that they are operating a “black box” approach allowing providers to set their own service specifications and thereby encouraging innovation.

Though, claims made by DWP officials last summer that the Programme has set a new “gold standard for procurement” against which all future public sector procurements will be judged was met with derision from readers of Supply Management. And, while the speedy introduction of the Programme was described by the NAO as a “significant administrative achievement”, the Public Account Committee has said “implementing the Programme quickly should not come at the expense of securing value for money” who found it “shocking that the business case and essential justification for the Work Programme were devised after the key decisions had already been made”.

The NAO recognise that it is too early to judge the success of the Work Programme and has stressed that they are really looking at the areas DWP need to be aware of to help ensure success. That subtlety is lost in the report, its press notice never mind its reporting in the press. Nonetheless, DWP don’t come out of the report particularly well.

Up to now there has been an absence of data on how the Programme has been performing. Consequently, there has been much conjecture and anecdotal evidence. The NAO don’t believe it will be possible to make any judgments on performance until later this year. Official statistics from DWP including referrals data are expected to be published on 21 February and quarterly thereafter, with official statistics on job outcomes from the autumn.

In response to the coverage of the NAO report, and ahead of the Public Accounts Committee hearing the Employment Related Services Association (ERSA), the trade association for the welfare to work industry rushed out leaked figures (providers are contractually forbidden from revealing how they are performing outside the official statistics produced by DWP) showing that between 18 and 23 per cent of customers who were referred to the Work Programme last June have already started employment. That might sound impressive, but you have to remember that DWP assume that 28 per cent of claimants will gain employment if the Programme did not exist (though that figure is 5 per cent in the first year). You also need to set that alongside a hidden gem in the report which states that 16 of the 40 Work Programme contracts are currently subject to a performance improvement plan.

It is the case that the Work Programme has become a “marmite” policy – you’re either for or against it. It would appear that the hand that was previous fed by DWP is also biting back with Richard Johnson the former managing director of welfare to work at Serco, writing in the Guardian confirms that “the cheapest were awarded the most contracts”. Even, long-term supporters of the Work Programme, the Social Market Foundation (who were influential in its inception) are saying that there are “serious questions over the viability” of the Programme and have supported the NAO analysis, which is not surprising given that they came up with an similar analysis last August using a similar, if not, identical methodology built around the experience of the Flexible New Deal.

Much of the disagreement over the estimated performance of the Programme is about the changing state of the economy. Robert Devereux, DWP’s Permanent Secretary claimed at the PAC hearing that this was not a material difference and it is better to have a longer time series, 7 years rather than 18 months. Though looking forward tells a different story as according to the NAO evidence at the PAC hearing, the average unemployment rate over the 7 year period (2001 to 2008) from which DWP drew its assumptions was about 5.1%. In contrast, it was 7.9% over the 18 month period of the Flexible New Deal (2009 to 2011); with projections from the OBR over the first five years of the Work Programme averaging at 7.8% it would appear that the NAO have, correctly, taken a prospective look at the economy.

When challenged DWP fall back on the argument that this will be at the provider’s and not the taxpayer’s risk. In other words, if DWP can hold their contractors to their contracts, no matter who is right DWP or NAO, the taxpayer wins. That is a false position to take, because it will leave hundreds of thousands of long-term unemployed remaining trapped in worklessness at the cost to the taxpayer and is certainly not a good outcome for what is meant to be outcomes-based programme. And, even if DWP replace failing providers, and you do sense they would like this to happen to prove a point, it will not be on the same terms as the original procurements if, indeed, alternative providers are willing to take part.

Even on the DWP’s own projections, the best part of two thirds of the people going through this Programme will not be getting jobs. There is a question about how they are going to be treated and what are the service levels that they can expect. One of the things that the commissioner loses in these “black box” contracts is real insight into how the contracts work on the ground and how services are delivered. DWP did not assess the provider’s methodologies nor set consistent minimum performance standards and although providers have these, apparently these vary considerably with some just running to a few sentences.

It was not surprising then that at the subsequent Public Accounts Committee hearing there was considerable focused on the concepts of “creaming”, “parking” and “gaming” where providers seek to focus on the easier-to-help groups and cut corners in terms of service quality while making out they are dealing with the harder-to-help. DWP rightly claim that they have taken measures to prevent these practices. However, the PAC were told by Professor Dan Finn (Centre for Economic and Social Inclusion) that the differential payments model adopted by DWP will not prevent ‘creaming and parking’ within customer groups or geographical areas with some kind of “gaming”. Though contractors would argue that going forward they would be focused on using their operational freedom in “active targeting” where they think rationally about what is the minimum they can do to get someone to work and then spend more money on the people who need more assistance.

According Professor Finn’s report looking at the Work Programme in an international context published alongside the NAO study in Australia (which has a much longer history of contracting for employment services) they decided to re-regulate their scheme because of black box contracting and perverse incentives that were created in the system. Now it is incredibly prescriptive with up to half the money in the system chewed up in administrative and process costs. A compromise would, Professor Finn suggest, involve setting nationally some minimum service standards which, Andrew Dutton from A4e at the PAC hearing saw some merit in as along providers retain flexibility and freedom to work with each customer in the right way.

This article is based on a LGiU member briefing by Mark Upton. To view all LGiU member briefings click here, or for more information about LGiU membership, please follow this link.