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

Graham Brady illustration
Show Hide image

Tory backbench leader Graham Brady: “When we vote to leave the EU, the PM should stay”

As chair of the 1922 Committee, Graham Brady is a king among Tory backbenchers. So what does the ardent Eurosceptic make of David Cameron’s prospects in the EU referendum – and afterwards?

Enter Graham Brady’s office and you are treated to a magnificent panoramic view of the Palace of Westminster and Parliament Square. It is an appropriately grand vantage point for one of the most influential MPs. As the chairman of the Conservative backbench 1922 Committee, Brady is an essential barometer of Tory opinion. In recognition of this, he was one of the first guests to No 10 Downing Street in the hours following David Cameron’s general election victory. A prime minister with a majority of 12 – the smallest of any single-party government since October 1974 – must take permanent heed of his backbenchers.

I met Brady, 48, shortly before the start of Prime Minister’s Questions on 10 February. Among Conservative MPs below us in Portcullis House, there remained only one topic of discussion: Europe. Cameron’s draft agreement with the EU has failed to persuade many Eurosceptics that they should vote in favour of membership of the Union when the referendum is likely held on 23 June. Brady, who entered parliament in 1997 as the MP for Altrincham and Sale West, is one of those who intends to campaign for withdrawal.

“There is a very long-term problem that there is a massive difference between what Britain thought it was joining – the European Economic Community – and what it actually was joining,” he said. “There was no appetite or decision to join a political Europe . . . That is something that has always needed to be resolved in some way and I think the more the eurozone, in particular, integrates with the continuing crisis, the more we will have to see massive political and fiscal integration and probably, still, the departure of some of the weaker eurozone countries. As that process goes on, the United Kingdom has got to redefine its relationship in a meaningful way.”

In advance of the European Council summit in Brussels on 18-19 February, he warned that Cameron’s renegotiations had fallen far short. “The reforms that are being sought by the Prime Minister, while all welcome changes, don’t come anywhere near to that fundamental reform of the nature of our relationship with the EU.”

I asked Brady, who was elected to lead the 1922 Committee in 2010, how many of his Conservative colleagues he expected to join him. “It’s very hard to say. I’ve always thought that a clear majority of Conservative members of parliament are deeply unhappy about the shape of the current European Union. And probably a clear majority would have a preference of leaving the EU as it is today. I suspect that roughly 100 will declare that they’re campaigning for Britain to leave. But many more will be very sympathetic to that objective.”

His estimate of 100 is notably higher than the 50 to 70 predicted by Steve Baker, the co-chairman of Conservatives for Britain.

In recent weeks, Eurosceptics have complained as pro-EU cabinet ministers have campaigned for membership while front-bench opponents have remained “gagged”. Brady told me it was “not unreasonable” for Cameron to force them to abide by collective responsibility until the renegotiation had concluded. But, he added: “What is important is that once the deal is done things should be brought to a conclusion as rapidly as possible. I hope there will be a cabinet meeting, if not on the Friday after the Prime Minister returns, then on the Saturday morning, [so] that the cabinet can agree its collective position and also agree that those who don’t share that view are free to say so and free to campaign.”

Some MPs expect as few as five cabinet members to support EU withdrawal (Iain Duncan Smith, Chris Grayling, Priti Patel, Theresa Villiers and John Whittingdale) although others remain hopeful of persuading Boris Johnson and Michael Gove to join them. “I hope that everybody who is really committed to Britain’s future as a free, independent democracy will realise this is a key decision point,” Brady said.

“There’s no doubt that if Boris Johnson were to campaign for Britain to leave it would bring an energy and buzz to the campaign. Of course that would be welcome, and I hope that Michael Gove will resolve his dilemma in the same direction.”

I asked Brady if he was worried by what some Eurosceptics call “the Farage problem”: that the most prominent opponent of EU membership is also the most polarising. “Nigel Farage is very good at what he does,” he said of the Ukip leader. “He’s a very effective communicator with some audiences, so clearly he has a role in the campaign. Given the salience of the issue for him and his party, it would be unreasonable to expect him not to be prominent in the campaign. But he is a Marmite character and I think this is why it’s so important that there should be a wide range of different voices.”

Brady, who had just returned from a breakfast meeting in the City of London, told me that a number of business people have revealed to him that although their “institutional position is firmly that we should remain in the EU . . . privately their view is completely the opposite”.

Two days before we met, Cameron had been accused of “scaremongering” for warning that “the Jungle”, the refugee camp in Calais, could move to Dover in the event of EU withdrawal. Brady told me that the Prime Minister’s remarks were indeed “inaccurate” and that it was “enormously helpful of the French government to point out that it wasn’t going to happen”.

Were Britain to vote to leave the EU, as polls suggest is possible, many Tory MPs on both sides believe that Cameron would have to resign as Prime Minister. But Brady rejected this suggestion. “No. When we vote to leave the European Union I think it is very important that we have a period of stability. I think it would be hugely valuable to have an experienced team in place to deal with the renegotiation, I think it’s actually very important that the Prime Minister should stay.”

I noted that he referred to “when” Britain leaves the EU, suggesting he was confident of victory. “I’m always confident of victory,” he replied with a smile.

Given Cameron’s decision to pre-resign before the election by vowing to serve only two terms, there will be a Conservative leadership contest before 2020. I asked Brady whether, as some have suggested, the members’ ballot should be widened to include more than two candidates.

“The rules are constructed for each contest by the 1922 executive and agreed with the party board. The only stipulation in the constitution of the party is that we should provide ‘a choice’ to the party members. That has always been construed as a choice of two. I can’t see any reason why parliamentary colleagues would wish to reduce their own influence in the process by putting forward a larger field.”

The Education Secretary, Nicky Morgan, has argued that it is essential there be a female candidate (ideally herself). Brady offered her some advice: “I have very fond recollections of a woman leading the Conservative Party. I hope that if Nicky wants to launch her campaign seriously, she’ll talk to me about how we might promote more grammar schools and selective education as one of the ways that we can stimulate real social mobility in the country again – and she’ll have my support.” It was after the then shadow education secretary, David Willetts, argued in 2007 that grammar schools inhibited social mobility that Brady resigned as shadow minister for Europe.

If there is one stipulation that most Conservative members and MPs will make, it is that there be an anti-EU candidate in the field. I asked Brady whether he would consider standing himself.

“I say to people that I’m very happy with being the returning officer for any leadership contest,” he replied. But the man with a better feel for Conservative backbench opinion than any other ended our conversation with this prediction. “I do think it’s very likely that if we put two candidates forward to the party in the country, at least one of them will have been someone who campaigned for Britain to leave the EU.” 

George Eaton is political editor of the New Statesman.

This article first appeared in the 11 January 2016 issue of the New Statesman, The legacy of Europe's worst battle