Today the coalition government launched a new scheme where private contractors take on the task of finding jobs for 605,000 unemployed people this financial year and 565,000 next year on the basis of payment by results.
If successful, the employment minister, Chris Grayling, has indicated that the private sector model would be applied to prison rehabilitation, drug offenders, problem families and other services currently delivered by the public sector.
However, some critics of the Work Programme have warned that there is a danger private sector contractors going out of business because the targets set to find work for the unemployed are too demanding with too little money delivered upfront. Also the minimum performance standard that is being demanded equates to the highest level of performance that the previous Labour government’s New Deal for Young People ever reached during the boom years earlier in the 2000s.
Even the Commons Select Committee reviewing the pilot schemes was less than complimentary concluding that "Private providers have seriously underperformed against their contracts and their success rates are worse than Job Centre Plus even though private contractors work in easier areas"
Remuneration will be on a sliding scale according to the length of time the unemployed stay in work and the unemployment group they come from. The maximum fee a private provider can attract for a client ranges from £4,050 for a jobseeker's allowance claimant aged 18-24 to £13,120 for an incapacity benefit claimant [which is now called Employment Support Allowance or ESA].
In addition, payments to contractors are staged according to length of time the unemployed individual stays in work. There will be a small up-front payment of about 10% of the total. The next payment only comes after someone has been in work for three months if they are from a vulnerable group, or six months if they are a conventional jobseeker. The remainder is paid in instalments that last up to 18 months. If the person drops out of work those payments stop.
With providers taking the financial risk for as long as two years, the system is potentially high risk if the government has miscalculated the difficulty of finding work for the unemployed, especially those hardest to place such as those on incapacity benefit. The think-tank, The Work Foundation claims that in areas of Britain with the highest unemployment and fewest job vacancies, contractors will struggle.
In April there were 461,000 job vacancies in the UK but 1.47m people claiming job seeker's allowance and the total number of unemployed was 2.46m. Despite the daunting numbers, the new scheme will be mandatory for all those on jobseeker's allowance, employment & support allowance and lone parents with children aged over five.
The scheme is to be funded from future benefit savings. Prime contractors must achieve job entry rates higher than 10% above the government's estimate of how the client group would have been expected to fare without support from the Work Programme.
The contracts have been let over seven years and prime contractors are mainly highly capitalised firms such as Serco and Capita but they have sub-contracted service provision to specialist local organisations, including voluntary sector providers.
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