10 February 2010
Hot on the heels of the discovery that Pathways to Work agencies are missing their targets by two thirds, comes the news that the government has cancelled awarding a billion pounds worth of welfare-to-work contracts a day before the winners were due to be announced.

Men in orange boiler suits on forced work schemeThe contracts were for the first phase of the Flexible New Deal (FND) which is aimed primarily at claimants who have been on JSA for a year or more. Amongst the provisions under FND is a requirement for claimants to do a month’s full-time work for no wages. Private and voluntary sector contractors will be paid thousands of pounds for each FND claimant that they manage to move into full-time paid employment.

Following on from the realisation that Pathways to Work is not going to be a great money-spinner many agencies were counting on winning FND contracts, due to start in October, to boost their flagging profits.

However, the day before the winners of the bidding war were due to be notified, the DWP announced that all bids were off. They explained that because the number of unemployed people eligible for FND was now expected to be around 300% higher than originally forecast, new contractual terms would have to be created. A meeting set to happen last Friday for the disgruntled bidders was cancelled by the DWP at the last minute – allegedly because of snow – and no new date has yet been set.

The big problem for contractors is that the original contract meant that they would get 20% of the cash up-front to cover costs. The other 80% would be paid only if they moved claimants into full-time work lasting at least 26 weeks. However, few, if any, companies will be prepared to risk the large amounts of their own cash required to work with three times the number of participants, many of whom have no hope of getting jobs in the current economic climate.

Contractors are now arguing that they should get 50% of the cash up-front, regardless of whether the claimant gets into work or not. This would make the scheme extremely attractive to large companies who could engage claimants in pointless, but cheap to run, activities and training in order to meet work-preparation targets and make a profit regardless of employment results.

The government now has a hard choice to make. Should it admit that welfare-to-work won’t work and face the political fallout or hand over huge amounts of taxpayers’ cash for schemes that they know will fail.

The only other alternative seems to be a fudge in which a lengthy review is followed by small scale pilots, in the hope that by the time they have finished the national economy will have picked up again. However, to be seen to be doing so little in the face of a tidal wave of redundancies may in itself be politically suicidal.

Whatever the decision, any delay in awarding contracts may be fatal for smaller welfare-to-work agencies. For larger ones, however, a little patience may allow them to climb aboard a positively overflowing gravy train when it finally lurches up to the platform.

So, welfare-to-work is almost certain to be a disaster, but whether for the private sector or for the taxpayer has yet to be decided.

Source: The Observer, 8 February.


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