The real benefit thieves

Article published: Tuesday, May 17th 2011

From June the government’s new back-to-work scheme for the unemployed, run by multinational companies and farmed out to hard-pressed charities, will swing into action. MULE takes a look at what’s in store…

Last April the government revealed its preferred bidders for its new back-to-work training scheme, the Work Programme. The stated goal is to get jobseekers back into employment and ‘customers’ at various stages of their Jobseeker or Employment Allowance claims are referred to the programme, commercially run by ‘prime contractors’. Three large companies won contracts to run the scheme in Greater Manchester – G4S, Seetec and Avantis.

Once secured, the prime contractors then hire subcontractors, often charities or smaller businesses, to operate the scheme on their behalf. The Department for Work and Pensions (DWP) calls the inclusion of 300 voluntary sector organisations in the programme a “massive boost to the big society.” Yet revelations of suspicious contracts granted between prime contractors in Manchester are raising questions over the programme’s integrity.

The welfare market is often highly lucrative, with employment agencies A4E and Reed estimating pre-tax profitability of 10 per cent from their contracts according to their testimony before the Commons Committee of Public Accounts last year. With large private companies in control of who is at the receiving end of billions of pounds worth of government money, concerns have been raised over the transparency in the allocation of sub-contracts. Interestingly, in Greater Manchester prime contractor G4S has contracted Avanta to be one of nine Job Brokers – despite Avanta also being a primary contractor in the same region, and hence a competitor.

Murky deals

If one were to lose a bid, the other could pick it up and neither would lose out. Deals like this echo allegations made to the House of Commons Work and Pensions Committee, who reported last year that “potential prime contractors are submitting tenders which subcontract to each other on a reciprocal basis, squeezing others out of the market.”

The report concluded: “The Department must look not just at what percentage of work prime contractors are devolving to sub-contractors, but at who those subcontractors are. If a cartel is operating is should be broken up.”

As for the scheme itself, once ‘customers’ have been randomly assigned to one of the three prime contractors they are then further re-distributed between ‘Job Brokers’ and ‘Knowledge Banks’ who are subcontracted to perform various aspects of the service – from skills to training, job hunting and in-work support. The contractors are paid a variety of fees to find long-term employment for their customers, with the largest potential income coming from those they keep in sustained employment.

The logic for outsourcing such contracts is that market incentives will push training providers into helping the unemployed into work. However, previous DWP research into the similar ‘Pathways to Work’ scheme found evidence of both “parking” (focusing help on clients who find it easiest to gain work) and “creaming” (giving others the bare minimum of service). Recent figures for Greater Manchester show just over five applicants for every vacancy reported to Job Centre Plus, and it is unclear how such practices can be avoided if contractors are to turn a profit.

The Big Society in Action

In keeping with the government’s ‘Big Society’ mantra, many of the subcontractors belong to the charity or voluntary sector. The 2010 Spending Review stated this was part of a process of reform “focused on shifting power away from central government to the local level – to citizens, communities, and independent providers, so they can play a greater role in shaping services.” According to the DWP, primary contractors for the Work Programme are obliged to “use smaller voluntary sector providers and face losing their contracts if they do not treat them reasonably.”

But according to Andy Benson from the National Coalition for Independent Action, a network of community groups opposed to what they see as the co-option of voluntary groups to the interests of funders, the increased dependence of the third sector on contracts from major companies like G4S is eroding their independence.

“The problem with contracting and subcontracting is that it effectively requires you to subscribe to someone else’s agenda,” he explained.

“In a highly structured commissioning environment locally based voluntary groups are finding that the only terms under which they can obtain funding is if they explicitly sign up to a commissioner’s agenda. Many hundreds of thousands of voluntary organisations have sleepwalked into this position.”

The lasting effect is that many charities and volunteer organisations are simply becoming cheap labour for the primary contractors, performing narrowly defined services in exchange for much-needed contracts. The voluntary sector used to be an area where individuals came together to do work based upon what they felt their community needed, raising funds as they saw fit. The situation now, Benson argues, is that they have “little by little become arms length agents of other people’s plans.”

Uncertain futures

Concerns about the effects of privatising welfare-to-work schemes were discussed by ministers in 2008 as Labour set about out-flanking the Conservatives with new welfare policy. A study by centre-right think-tank Policy Exchange concluded that while there were certain benefits to the scheme such as reduced dole queues in countries with similar programmes, the companies involved were often found to behave unscrupulously, cutting corners where they could in order to maximise profits.

Despite new guidelines designed to minimise these types of abuses, many believe that the state could provide as good a service as private and third sector organisations. Research by Steve Davies, Senior Research Fellow in Social Sciences at Cardiff University, found in 2008 that it was not always the case that such groups would be more efficient at providing services, as government ministers assume, concluding, “It is simply not true that either the private or the third sector has a consistently better record in the provision of employment services than in-house staff.”

With the Work Programme coming into full effect this summer, its success remains to be seen. The tension between prime and subcontractors is already visible, however, with none of the eight groups contacted by MULE wishing to comment on their involvement. With 88 third sector organisations receiving contracts from G4S alone, MULE’s survey was far from conclusive. However, one individual working with a disabilities charity did tell us that “lots of people are really worried about what’s going to happen.”

“We get people asking us every day how the new programme is going to affect them and at this stage we simply don’t know.”

Peter Stanners

Tweet

More: Cuts, Features, Welfare

Comments

1. Excellent – sheds some light on who the real benefit thieves are

   Comment by Michael Pooler on May 17, 2011 at 1:44 pm

2. Job centre staff are currently totally useless at everything they are supposed to do.

   I don’t blame them totally for this. Many are poorly paid and badly trained and their management is dreadful/non-existent in a typical public sector manner.

   However, as the current system is an expensive waste of money I see no harm in trying alternatives using private companies. At least these companies can be judged on results and given the boot if they don’t perform – an attitude which is almost unknown in the public sector where a job for life is still seen as the norm in far too many cases with the inevitable dreadful customer service and value for money.

   Comment by simon on May 17, 2011 at 2:21 pm

The comments are closed.