Westminster blog

There is a certain irony to David Freud’s defection. When he first unveiled his plan to massively expand the role of private providers in finding work for the jobless, the ideas were compelling but largely ignored by politicians. He now joins the Tory frontbench at a time when his welfare plans are as popular in Westminster as apple pie. But his ideas, out in the real world, are facing their first real test.

The early evidence from Freud-style welfare programmes suggest the reforms are harder and more expensive to implement than first envisaged. Freud designed them in the good times, when credit was easy and jobs were aplenty. The core ideas are still sound. But neither Labour nor the Tories have really come to terms with how they will need to be changed to cope with a severe recession and credit crunch.

The Tories already have a welfare plan. It is basically the Freud report, with some heroic extrapolations of savings (which are used to pay for tax-cutting “aspirations”) and some added tough talk on making the workshy toil for their dole. The question is whether Freud the frontbencher will have to rewrite the Tory plan to address these problems:

1) Finding jobs for people on sickness benefit is hard and expensive

The Tories hoped to save at least £3bn a year by finding jobs for the 2.6m strong army of incapacity benefit (IB) claimants. But the latest evidence from the Freud inspired Pathways scheme casts serious doubt on this. Private providers, paid by results, are failing to reach 25 per cent of their targets – and that was before the big rise in unemployment. This is exactly the type of scheme the Tories want to rollout to all IB claimants, not just a minority.

We knew very little about people on IB. Providers are not encouraged by what they are finding out. The contracts presumed a jobseeker would need 3 or 4 months support before finding work. Officials now estimate they need double that, at best. To make the task even harder, for the next few years IB claimants will be competing against thousands of people who have just been made unemployed. Tory insiders say they would increase the price paid to providers for finding someone a job. But savings of £3bn a year? Think again.

2) Private providers will struggle to raise money

The Tories said generating these savings would be cost-free because private providers would be paid by results. If a provider fails to find a benefit claimant work, they receive no payment for the time they have invested trying.

This effectively passes all the risk of welfare programmes to the private sector. Fine. But will these companies be able to raise the money to invest and take on that risk? No provider is making money on Pathways and some are on the verge of handing back their contracts. On these results, some providers doubt they could convince banks to back them, even if credit was flowing. They argue that for the model to work, there needs to be a bigger upfront payment from government. (Providers have demanded similar changes to programme for the long term unemployed.)

Bottom line: the programmes could be costly in the short term. Will the Tories make that investment?

3) Running bootcamps is not cheap or easy

The Tories are going to make anyone claiming unemployment benefit for two of the last three years “work for their dole”. This mandatory labour sounded like a good idea when the unemployment queues were relatively small. But by the time the Tories come to power, the list of candidates for the bootcamps could easily approach 1m or more. Even at Tory cost-estimates of up to £1,500 a head, the bootcamps are quite pricey. The cost could top £1.5bn.

And how will this be sold to the hundreds of thousands of people who tried and failed to find a job during the most severe recession in at least a generation? Coralling a mix of drug addicts, feckless layabouts and genuine jobseekers into these programmes will be fraught with difficulties. What exactly will they do? And will the Tories invest in an infrastructure to cope with them?