Charities lose again on welfare to work

Charities lose again on welfare to work
Alison Benjamin, The Guardian

At the first real opportunity it has had to let charities prove they can get us out of this recession, the government flunks it by awarding to private companies the bulk of its programme to get long-term unemployed people back into work. Sheffield-based firm A4e won the contract to run the flexible new deal (FND) in five areas of England, and Serco, the FTSE 100-listed public services provider, got four contracts, including much of Wales. Two overseas newcomers, Dutch-based Calder Holdings and US/Dutch Mentor Employment & Skills, were also on last week’s preferred bidder list. The Glasgow-based Wise Group, a social enterprise, did win the contract for Scotland, yet many voluntary organisations lost out, despite outperforming the private sector in delivery of programmes – such as Pathways to Work – that are the precursor to the FND, which begins in October.

The biggest surprise, however, is not the third sector’s poor show but how many private sector companies competed for the contracts, given that less than a year ago potential bidders were warning that to meet the government’s target of getting 69% of clients into work they would not receive anywhere near enough money per client to provide what was needed – such as high-calibre personal advisers, one-to-one meetings, and sub-contracting to local agencies with the specialist skills to help with, say, drug and alcohol problems. So what changed?

Most significantly, the government has poured more than three times as much money into its flagship welfare to work programme than originally intended. It is no longer a £2bn five-year programme expected to help more than 200,000 long-term unemployed people into jobs. It is now expected that triple the amount of jobseekers will access the service, after 12 months without work, at a cost to the taxpayer of £7bn over its lifetime – a figure that a government looking to put a squeeze on public spending has, unsurprisingly, not been keen to publicise.

The other notable change is that the government appears to have caved in to pressure from welfare-to-work companies and partially backtracked on its proposed payment-by-results. Preferred bidders can now expect a whopping 40% of the funding months before they find a single person a job.

The unit costs will, however, remain the same, so there are still justifiable fears that some providers will write off clients who require intensive, tailored and expensive support, and will cherry-pick clients who cost less to get into work. A report from the Social Market Foundation thinktank last year warned that paying providers the same amount of money for each person they find a job, regardless of their needs, will lead to firms ‘parking’ the most needy jobseekers because they are the most costly.

Serco has gone some way to addressing the low unit costs by suggesting to the Department for Work and Pensions (DWP) that it can get 40%-45% into work in the present economic client, rather than meeting the 65% target. And guess what? The DWP brought it. ‘We went in with a very realistic offer,’ says Richard Johnson, managing director of welfare to work at Serco.

Serco says that under its model, developed with the Association of Chief Executives of Voluntary Organisations (Acevo), it will sub-contract all its services to local voluntary and public sector organisations, such as a Kashmir youth group and The Prince’s Trust in Manchester.

Its close relationship with Serco perhaps explains Acevo’s rather sheepish response to the preferred bidder list. Instead of expressing outrage that so many of its members lost out or even had to withdraw from the uneven contest – having neither the cash flow nor the economics of scale to compete – it said it would be working closely with the DWP to ensure charities could play a major role as sub-contractors