Remember these Flexible New Deal contracts — that he condemned as “costing massive amounts of money and delivering very little” — are based on the very same principles as the coalition’s replacement “Work Programme”. And those Labour “payment by results” contracts were also designed with the help of one Lord Freud, who now serves as a welfare minister.
Grayling’s case against them is worth looking at in detail, at least to examine whether the coalition’s break with the past is as clean as he claims.
But, before doing that, it is important to give some background and highlight a potentially worrying trend.
Although it is too early to make a final judgement, at this point the welfare-to-work providers are falling well short of expectations. On average, they’re missing the government’s target by around 50 per cent.
The big concern for the coalition should be that Grayling’s critique doesn’t really relate to these potential problems. If he’s right about providers seriously underperforming, the Work Programme — the great hope for moving people off unemployment benefits — is likely to fare just as badly.
How bad is performance so far? This chart, pulled together by Ian Mulheirn at the Social Market Foundation, presents quite a stark picture. Month after month, performance has disappointed relative to dwp expectations. While it is not the right measure to judge providers by, I can’t resist pointing out that one provider has so far only placed just 3 per cent of jobseekers into work.
There is a health warning on these stats. The shortfall may be accounted for by the department having unrealistic expectations, or the fact that the 5-year programme only started last October, meaning most jobseekers will not have been given full support. Officials also expected it to have a slow start, given the recession.
But nevertheless they are a wake-up call for the industry and the department. It may be time to temper expectations of what payment by results programmes can achieve.
One other point is clear. The Grayling case against the government is almost completely unrelated to the level of job starts — the key measure of underperformance.
Let’s take his main gripes one by one.
1) Labour paid too much upfront. This is a value-for-money issue, particularly after Grayling cancelled the five-year contracts after they’d only run for a year. But it bears little relation to performance. Grayling argues it destroyed incentives. But companies were still paid the bulk of their fee for getting someone into work. Not only that, but the Work Programme will also include upfront payments. It will just be called something like an “activation fee”.
2) “Sustained support”. Grayling complains the incentives to keep people in work are poor. These rules can be tweaked. But again they pay no relation to how many people start jobs, which is the main area of underperformance.
3) Help based on individual needs. Grayling says FND was a “Whitehall know best” approach. The contractors are to be given more freedom. But the FND was pretty free anyway. The only example that the department gave for an overly-prescriptive rule was that people were put on “work related activity” (i.e. workgroups doing gardening) after a year. There will be no time rule under the Work Programme. That is hardly going to turn around performance.