“Payment by results”. It sounds good. Firms only get paid if they do well, so there is a powerful incentive for them to act in the best interests of the individual. Something is going very wrong though. About £4 in every £5 paid out to Work Programme providers is not being paid because a ‘result’ has been achieved. It is being paid for an ‘attachment’ to the Work Programme i.e. when an unemployed person starts the programme. Only £1 in £5 constitutes ‘payment by results’, and even then as we have seen, the value of these results is somewhat dubious.

The Government has actually taken these poor results and tried to spin it into a story about value for money for the taxpayer. Responding to the dire figures published in November, Work and Pensions Secretary Iain Duncan Smith said:

“I think we are on track. Payment by results is about saying the taxpayers need not foot the risk.”

In other words, he’s saying that even if the Work Programme providers performance is abysmal, it’s OK because the taxpayer only pays for results. Leaving aside the fact that that is just not true, as we’ve already seen, the idea that all that matters is value for money for the taxpayer is frankly bonkers.

We have an unemployment crisis in this country and every day we are forgoing millions of pounds in lost income because we have millions of people unable to find work. We are not making use of all these people’s skills and experience while they languish on benefits through no fault of their own. The idea that it’s OK that we are not finding work for these people because the taxpayer is not on the hook is crazy.

The Future Jobs Fund was scrapped by the Government because it cost too much. A cost of over £7,000 per job is widely cited, but a recently completed evaluation of the programme came up with somewhat different numbers. The programme was found to have a net cost to the Exchequer of £3,100, but provided a netbenefit to society of £7,800 per participant.

The idea that the only thing government’s should be concerned about is value for money, that cheaper means better is just illogical. It’s what society gains from spending by the government that really matters. The Work Programme may be cheaper than previous schemes (debatable I think), but the return on the government’s investment in the Work Programme looks like being very low (and maybe even negative) at this point. That makes no sense at all. Far better to spend more on a programme that will generate a greater return for society.

Payment by results is supposed to incentivise excellence, but achieving excellence is hard, even more so in an economy where there is a shortage of jobs. So instead of promoting excellence among Work Programme providers, payment by results seems to be promoting cheating or corner cutting (read part 2 for more on this). The result of this is that, far from creating an effective, unemployment reducing programme, it has created one which is barely (if at all) better than nothing.

Knock-on effects

Going hand-in-hand with the Work Programme appears to be the beginnings of a worrying trend in the labour market –  a growing casualisation of the workforce and – even more worrying – the rise of the unpaid work placement.

Casualisation

Casualisation, manifesting itself in the form of temporary, zero-hour or self-employment has exploded to such an extent that 3 million people now say they are underemployed, up by 1 million since the economic downturn began in 2008. So while Coalition ministers crow about falling unemployment, and 1 million new private sector jobs, it’s right to question just what sort of jobs they are, and what sort of precedent does this set for the future?

That’s not to say there is no place for zero hour contracts and temporary work. The key though is that there is a strong backstop in place to catch those who fall out of the system. Temporary work or zero-hour contracts are not so bad if there is a strong welfare state to fall back on (or a guaranteed state-funded job as I would like to see), but at the same time as the labour market remains weak, the Government are also weakening the welfare state at the same time by cutting working age benefits in real terms. Done in the name of deficit reduction, it’s the ultimate false economy. Cutting the incomes of those who spend most of their incomes mean less sales for businesses and less income overall. As Paul Krugman says:

“Your spending is my income, and my spending is your income. So what happens if everyone simultaneously slashes spending in an attempt to pay down debt? The answer is that everyone’s income falls — my income falls because you’re spending less, and your income falls because I’m spending less. And, as our incomes plunge, our debt problem gets worse, not better.”

Unpaid Work Experience (Or Workfare)

Wrapped up with the Work Programme has been the rise of mandatory unpaid work experience. Work experience has gained a lot of negative coverage in the media in recent years. A lot of this has focused on schemes outside of the Work Programme, but it is less known that it is very common for Work Programme participants to be mandated to do unpaid work experience.

The Work Programme uses the ethos of the ‘black box’ approach. This means providers have the freedom to do whatever they feel necessary to help a Work Programme participant get back to work. Often, it seems, this takes the form of unpaid work experience. This is mandatory. If participants refuse to take part, they can have their benefits sanctioned.

This practise of sending benefit claimants is growing in scope. It was recently announced that ESA claimants (those deemed unfit for work, but placed in the work-related activity group) can be mandated to do unpaid work experience for a time period without limit.

This phenomenon of unpaid work experience has now become so prevalent that private firms, with the collaboration of Jobcentre Plus and the DWP are now advertising ‘job vacancies’ that are actually unpaid placements. Here’s 2 examples:

There is a real danger I feel that this can become so normalised, that it becomes standard practise for certain employers to only hire on a ‘try before you buy basis’. This is just wrong in my view, but it just seems to have almost passed unnoticed in the press. It just shows how bad things have got when things most people would usually balk at just become the new normal. All decent people should oppose this in the strongest terms.

This post has strayed somewhat from its original theme, but just to try to draw the 3 parts of this series together. Here are the key points:

• The Work Programme is an expensive failure. If we didn’t have a Work Programme, we would have expected more long term unemployed to have found work.
• Work Programme providers are providing very little of value for the millions they are being paid. Instead, they are using a number of techniques to extract additional cash from the public purse.
• Payment by results just doesn’t work
• The Work Programme is giving rise to all sorts worrying trends, notably unpaid work experience.
• It seems to be becoming normal for employers to expect jobseekers to work for them for free for a period before offering them a paid role. This can only displace paid employees. It needs to stop.
• Real terms benefit cut and benefit sanctions are pure false economies. They will ensure unemployment rises, not falls and will bequeath a smaller economy than would otherwise be the case. It will end up costing us all more.