The Work Programme is a policy out of its economic depth

A decent idea born at a time when the jobs were there produces perverse results when they are not.

The Work Programme, the government’s vast welfare-to-work scheme, was supposed to be an engine of good news. It has been cited on a number of occasions by David Cameron as the shining example of radical innovation in a notoriously difficult area of policy and a firm rebuttal to the Labour charge that the government is somehow complacent about unemployment.

Billions of pounds are being made available in contracts to private and voluntary sector organisations in exchange for their expertise in placing benefit claimants in work.

Crucially, the service providers are paid by results – meaning, after a small “attachment fee”, they only get their money when their clients have jobs. People deemed harder to employ – generally those who have been out of work for longer – carry a premium. This is supposed to act as an incentive for providers to concentrate their efforts on the stubborn cohort of the long-term unemployed.  (A weakness in predecessor programmes was deemed to be that providers got paid for finding jobs for people who would have found them anyway and ignoring those who most needed help – the practice known in the industry as “parking and creaming”.)

A second aspect of the Work Programme deemed vital by government and providers is the “black box” approach. This means, in essence, that the Department for Work and Pensions won’t dictate the methods used to place people in work. Providers are meant to innovate and compete. The better formulae – the devices contained in the black box – will, in theory, succeed and their designers can then get more work and make more money. Naturally, the DWP does not (knowingly) tolerate cruel, illegal or fraudulent methods in the black box. The system is meant to drive imaginative, local solutions to a famously intractable problem.

As a theory it could all sound rather splendid: harness market forces alongside the noble ethos of the voluntary sector, underwritten by the DWP budget, to get the long-term unemployed back to work. The practice is proving tricky for a number of reasons. One is that lines of accountability are hard to police in a vast inter-locking network of different providers operating in different regions. This flaw has been exposed in the case of Jubilee crowd stewards allegedly being asked to sleep under London Bridge – and foregoing wages – in order to gain experience of crowd management. The chain of command from the DWP to a prime provider to a secondary provider to an actual employer means it is hard to say what the case actually expresses about the policy. Whose bad decision was it and to what degree does that express a systemic flaw? 

The same issue is raised by recent allegations of fraud at A4e, once a major beneficiary of DWP contracts, although it must be pointed out that the accusations relate to bits of A4e’s past practice and not its Work Programme activity. The point is that a private company, doing work on behalf of the government, is accused of wrongdoing. Had the whole thing been run in-house at the DWP, a minister would be called to answer for it. Now there is a danger of accountability leaking through the gaps.

But by far the biggest problem is the labour market itself. As I have noted before, the Work Programme was designed, and its funding arrangements set, with an eye to fiscal and labour market forecasts from the Office for Budget Responsibility (OBR). These forecasts have all subsequently been revised in a more pessimistic direction. Even before the revisions, many observers and industry insiders expressed concern that the funding model was unrealistic.

An important reservation was that small providers – the ones most likely to actually innovate and know the job market terrain in which they work – could never manage with the kind of cash flow constraints that the DWP insisted on when negotiating contracts. So a handful of giant companies got the prime contracting work and then sub-contracted out the actual business of placing people in jobs – and the financial risk -  to smaller players, often charities. At least one charity has pulled out. Others are rumoured to be on the brink.

A good account of the flaws in the model, based on past records of non-state providers meeting their targets for getting people into work, was published by the Social Market Foundation in August 2011.

What is becoming increasingly clear is that the Work Programme was conceived at a time when the main problem with unemployment was thought to be difficulty in matching people to jobs, training them and motivating them to take what was on offer. Those are still issues in some areas and some cases, but much deeper structural problems with the labour market are now apparent. So too are regional variations that mean there simply aren’t vacancies to be filled.

But the feature of the labour market that seems to be causing most problems for the image of the government policy is the decline in decently-paid low- and semi-skilled jobs alongside a vast expansion of unpaid work in the guise of “experience” and “internships”. This too was the defining feature of the Jubilee steward story. For the employer (and presumably the Work Programme provider) it seemed quite reasonable to offer unpaid work as a precursor to paid work. This is well-established in the jargon as one of the “pathways” back to labour market participation. But that concept relies on the assumption that people need coaxing off a cosy life on benefits. Many are far more preoccupied by the urgent need for wages.

This too was the problem with the government-sponsored work experience scheme (not the same as the Work Programme) that caused a minor scandal last year. Companies were accused of employing “slave labour” – welfare-claimants who were given to understand that their benefits would be docked if they didn’t show up. The DWP vehemently denied that such a sanction was official policy.

Defenders of the policy argued then too that “work experience” was an essential staging post on the route back to actual work. Opponents pointed out (amid more lurid claims) that the scheme was essentially providing a taxpayer subsidy for the companies that would otherwise have had to recruit people to stack shelves etc. and pay them. The government’s welfare-to-work policies are meant to match people with actual vacancies, but in the absence of demand from employers they are creating perverse incentives for people to work without wages.

It is important to disentangle two things. On one hand, there is the original ethos of a policy that emerged from many years of frustration with government’s constant inability to find work for people who were claiming benefits even when the economy was growing and, by many measures, there were jobs to be had. Second, there is long-term downward pressure on wages at the bottom end of the labour market, compounded by stagnation, a global shortage of demand, low investment, public sector cuts and only modest private sector job creation. In such conditions, the best welfare-to-work policy conceivable would run into difficulty. No wonder the Work Programme, very far from perfect, is in trouble. But even if it fails in a downturn, something very much like it will still end up being re-invented for the recovery.

Secretary of State for Work and Pensions Iain Duncan Smith arrives for a Cabinet meeting at 10 Downing Street. Photograph: Getty Images.

Rafael Behr is political columnist at the Guardian and former political editor of the New Statesman

Getty.
Show Hide image

Hannan Fodder: This week, Daniel Hannan gets his excuses in early

I didn't do it. 

Since Daniel Hannan, a formerly obscure MEP, has emerged as the anointed intellectual of the Brexit elite, The Staggers is charting his ascendancy...

When I started this column, there were some nay-sayers talking Britain down by doubting that I was seriously going to write about Daniel Hannan every week. Surely no one could be that obsessed with the activities of one obscure MEP? And surely no politician could say enough ludicrous things to be worthy of such an obsession?

They were wrong, on both counts. Daniel and I are as one on this: Leave and Remain, working hand in glove to deliver on our shared national mission. There’s a lesson there for my fellow Remoaners, I’m sure.

Anyway. It’s week three, and just as I was worrying what I might write this week, Dan has ridden to the rescue by writing not one but two columns making the same argument – using, indeed, many of the exact same phrases (“not a club, but a protection racket”). Like all the most effective political campaigns, Dan has a message of the week.

First up, on Monday, there was this headline, in the conservative American journal, the Washington Examiner:

“Why Brexit should work out for everyone”

And yesterday, there was his column on Conservative Home:

“We will get a good deal – because rational self-interest will overcome the Eurocrats’ fury”

The message of the two columns is straightforward: cooler heads will prevail. Britain wants an amicable separation. The EU needs Britain’s military strength and budget contributions, and both sides want to keep the single market intact.

The Con Home piece makes the further argument that it’s only the Eurocrats who want to be hardline about this. National governments – who have to answer to actual electorates – will be more willing to negotiate.

And so, for all the bluster now, Theresa May and Donald Tusk will be skipping through a meadow, arm in arm, before the year is out.

Before we go any further, I have a confession: I found myself nodding along with some of this. Yes, of course it’s in nobody’s interests to create unnecessary enmity between Britain and the continent. Of course no one will want to crash the economy. Of course.

I’ve been told by friends on the centre-right that Hannan has a compelling, faintly hypnotic quality when he speaks and, in retrospect, this brief moment of finding myself half-agreeing with him scares the living shit out of me. So from this point on, I’d like everyone to keep an eye on me in case I start going weird, and to give me a sharp whack round the back of the head if you ever catch me starting a tweet with the word, “Friends-”.

Anyway. Shortly after reading things, reality began to dawn for me in a way it apparently hasn’t for Daniel Hannan, and I began cataloguing the ways in which his argument is stupid.

Problem number one: Remarkably for a man who’s been in the European Parliament for nearly two decades, he’s misunderstood the EU. He notes that “deeper integration can be more like a religious dogma than a political creed”, but entirely misses the reason for this. For many Europeans, especially those from countries which didn’t have as much fun in the Second World War as Britain did, the EU, for all its myriad flaws, is something to which they feel an emotional attachment: not their country, but not something entirely separate from it either.

Consequently, it’s neither a club, nor a “protection racket”: it’s more akin to a family. A rational and sensible Brexit will be difficult for the exact same reasons that so few divorcing couples rationally agree not to bother wasting money on lawyers: because the very act of leaving feels like a betrayal.

Or, to put it more concisely, courtesy of Buzzfeed’s Marie Le Conte:

Problem number two: even if everyone was to negotiate purely in terms of rational interest, our interests are not the same. The over-riding goal of German policy for decades has been to hold the EU together, even if that creates other problems. (Exhibit A: Greece.) So there’s at least a chance that the German leadership will genuinely see deterring more departures as more important than mutual prosperity or a good relationship with Britain.

And France, whose presidential candidates are lining up to give Britain a kicking, is mysteriously not mentioned anywhere in either of Daniel’s columns, presumably because doing so would undermine his argument.

So – the list of priorities Hannan describes may look rational from a British perspective. Unfortunately, though, the people on the other side of the negotiating table won’t have a British perspective.

Problem number three is this line from the Con Home piece:

“Might it truly be more interested in deterring states from leaving than in promoting the welfare of its peoples? If so, there surely can be no further doubt that we were right to opt out.”

If there any rhetorical technique more skin-crawlingly horrible, than, “Your response to my behaviour justifies my behaviour”?

I could go on, about how there’s no reason to think that Daniel’s relatively gentle vision of Brexit is shared by Nigel Farage, UKIP, or a significant number of those who voted Leave. Or about the polls which show that, far from the EU’s response to the referendum pushing more European nations towards the door, support for the union has actually spiked since the referendum – that Britain has become not a beacon of hope but a cautionary tale.

But I’m running out of words, and there’ll be other chances to explore such things. So instead I’m going to end on this:

Hannan’s argument – that only an irrational Europe would not deliver a good Brexit – is remarkably, parodically self-serving. It allows him to believe that, if Brexit goes horribly wrong, well, it must all be the fault of those inflexible Eurocrats, mustn’t it? It can’t possibly be because Brexit was a bad idea in the first place, or because liberal Leavers used nasty, populist ones to achieve their goals.

Read today, there are elements of Hannan’s columns that are compelling, even persuasive. From the perspective of 2020, I fear, they might simply read like one long explanation of why nothing that has happened since will have been his fault.

Jonn Elledge is the editor of the New Statesman's sister site CityMetric. He is on Twitter, far too much, as @JonnElledge.