Non-payment for non-results

27 November 2012

The Government’s Work Programme results should provoke serious questions about payment by results – but not its abandonment.

The Work Programme, introduced by the Coalition in the summer of 2011, was meant to be the route to efficient and effective employment services.

Under the scheme, the Department for Work and Pensions (DWP) pays providers of employment services to help the long-term unemployed back to work. Private and voluntary sector companies are paid ‘by results’, receiving the bulk of their income for placing the long-term unemployed into work and for keeping them there for more than six months. Providers are not just rewarded for good performance through financial payments, but also through a greater workload.

The Government has always presented the Work Programme as revolutionary and has even gone so far as to argue that payment by results (PbR) was risk free as far as government was concerned. Earlier this year, then DWP Minister of State Chris Grayling argued “private companies and not taxpayers… are carrying the risks”, because if they fail to get results they do not get paid.

Today’s results clearly show, however, that this statement is either grossly naïve or deliberately misleading. 18 months into their five year Work Programme contracts, every single major provider has missed the DWP’s minimum target of getting 5.5% of those referred to them into sustained employment. Taxpayers may not be dishing out too much money to these providers but they are still paying for the country’s bloated benefits bill. Government, meanwhile, stands poised to suffer the political fall-out and hundreds of thousands of long-term unemployed remain jobless. On average, just 2.1% of those on the Work Programme found and kept jobs for more than six months.

This is not to say that PbR has no place in government contracting. But it does suggest that mistakes were made. Both the Social Market Foundation and the National Audit Office have criticised aspects of the scheme’s design. For example, DWP failed to take into account the state of the economy when setting levels of payments to providers – meaning that providers could have enjoyed highly generous payments in a growing economy, but in fact started to haemorrhage money in the sustained slump. This appears to have left providers with a tricky choice. Either they hunker down, cut costs and take the small payments they get for ‘attachments’ rather than outcomes until the economy recovers or they invest to get better results, hoping that in the long run they will be given more business and will be able to recoup their investments. The Centre for Economic and Social Inclusion’s analysis suggests that they may have opted for the former strategy, with their assessment showing that Work Programme performance was below the levels they would have expected based on previous employment schemes, even taking into account the economic downturn.

Wider contracting decisions may have contributed to poor performance. As we have argued elsewhere, it’s not simply the payment structure that matters when it comes to government contracting. Under the Work Programme many providers were asked to relocate their operations to parts of the country they had little knowledge of – a factor that naturally increased the risks of performance dips as providers got up to speed. A quick look at providers’ performance shows that most did best in areas where they had worked before (on the programme’s predecessor schemes) raising questions about why commissioners decided to shuffle providers around as much as they did. Providers also faced wider difficulties that were perhaps not of their own making. For example, some complain in private that many of the jobseekers assigned to them proved difficult to track down, either because contact details were inaccurate or because they simply didn’t exist.

Some of these implementation problems may be resolved through gradual learning but DWP must still urgently answer the bigger question of how they will ensure that providers are incentivised to invest in high quality services. The task is a tricky one. Paying providers more despite their poor performance risks rewarding failure, but if DWP continues to pay too little for getting people into work, providers are unlikely to invest sufficiently to generate results. Cancelling lots of contracts might send a clear signal that poor performance won’t be tolerated, but might also discourage the innovation and risk-taking that will enable improved performance in the long run. If companies are forced out of the market, there may also be further performance dips as new providers get up to speed.

PbR might be a straightforward and appealing idea in theory – but in practice it is hard to get right and demands even more of those designing and overseeing outsourced provision of public services. These results confirm that Whitehall commissioners will need to up their game and introduce PbR at an appropriate pace and scale.

Grand plans such as the Work Programme and PbR to reduce reoffending may grab the plaudits when they are announced but what matters is whether they actually lead to better services and value for money for the taxpayer. The Work Programme may yet be rescued and prove to be a success in the long run. At the time of writing, however, the results do not look promising.

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