Memorandum submitted by PCS (EP 06)




The Public and Commercial Services Union (PCS) is the largest trade union within both the civil service and the Department for Work and Pensions (DWP). PCS represents just under 300,000 people including 84,000 members working in the DWP. We also represent members who continue to carry out public service functions now situated in the private sector.


Our members have a range of roles that span the DWP, its many entities, tasks and priorities. PCS members are not only providers of services but recipients too.


The union's aims of improving the conditions of members working lives and raising issues of service quality and provision continue to be supported by PCS members through an active and democratic network of lay representatives, who volunteer, negotiate and campaign throughout the UK.


PCS welcomes the select committee's timely inquiry and is happy to supplement this written submission with further information and oral evidence.


PCS submitted an emergency motion to the annual Trade Union Congress 2008 which set out policy to oppose the right to bid and the privatisation of employment services. This policy was democratically agreed by the trade union movement and continues to be advocated by PCS.




1. Job cuts and office closures in the DWP since 2004 have undermined the ability of the government to respond effectively to the recession and support unemployed people. The cuts in the DWP have also curtailed the ability of PCS members to deliver existing employment services. At the same time the government has continued to commission more services from the private sector.


2. The government's drive to privatise DWP work is part of a wider policy agenda of contestability that is supported by all the three main political parties and involves opening up markets for public services to new suppliers from the private and third sectors to create public service industries.


3. The government commissioned report by the economist DeAnne Julius published in July 2008 recommends opening up more UK public services to markets and encouraging developing nations to follow suit.


4. The welfare green paper in July 2008 stated that 'Jobcentre Plus is recognised as one of the best back to work agencies in the world'. Regardless of the 'superb record' of the public sector in delivering back to work support, the government still continues to privatise employment services.


5. Child Poverty Action Group research, published December 2008 entitled 'Contracting out employment services: lessons from Australia, Denmark, Germany and the Netherlands' by Sharon Wright examines the international research evidence and 'finds remarkably little justification for the proposed changes to the delivery of employment services'.


6. The Audit Commission in 2008 said they are 'not aware of any evidence that services transferred to the third sector show distinct improvement in quality after that transfer' and concluded that 'there is very little evidence, at either national or local level, on the performance and value for money secured from voluntary sector providers'.


7. The sector promoted by the government to take DWP contracts is composed of non-profit making voluntary and community groups, hybrid governmental-charities, long established charities and profit-seeking businesses. They have different priorities ranging from representing service users through to those who aim to increase their own market share of public contracts.


8. PCS believes that it is wrong to allow private sector contractors to profit from the unemployed.




Privatisation proposals: provision of social fund loans


9. The welfare reform bill clauses 15 - 17 establishes powers for contracting out the provision of social fund loans. Although ministers have expressed a preference for contracting Credit Unions to provide social fund loans, the bill would empower the Secretary of State to contract 'any person' to undertake this work thereby allowing any private company to bid for the social fund.


10. The prior proposals on social fund had an exceptionally short consultation period immediately prior to Christmas 2008 and no response has been published by the government. A further period of public consultation was promised by the government to take place in summer 2009. However this has failed to materialise. Yet the bill proposes to privatise social fund loans and to restrict availability to loans from Jobcentres where there is provision by another provider.


11. The figures for the take-up of the social fund in the consultation document show that the social fund is very popular. Four million applications for a discretionary payment in 2007/08 is evidence of the large demand that exists. This evidence shows the current social fund in a positive light, as a DWP success story, where the offer of additional financial support has been taken up enthusiastically, as a much-needed lifeline, by DWP clients struggling to manage on very low incomes.


12. PCS is opposed to moving the provision of the social fund out of the DWP because it will put this popular and successful service at risk.


13. On 20 Jan 2009 the Financial Services Compensation Scheme stepped in to protect members of two failed credit unions. They are processing claims for customers of Khalsa (Bradford) Credit Union Limited in Bradford and Polmaise Community Credit Union Limited in Stirling, Scotland, which became insolvent at the end of last year.


14. As well as the consequential effects of an economic crisis, we do not believe that any credit union has the capacity to take over social fund work. There is certainly no credit union capacity to take on the national delivery of four million applications for credit a year. DWP does have the capacity, as it has proved year after year for the last twenty years.


15. The DWP is by far the best placed organisation to deliver the social fund and is able to deliver this service to every person in the country who needs it.


16. PCS is not opposed to credit unions and we support the principles underpinning them. Indeed PCS is currently investigating how a credit union could be set up for the use and benefit of PCS members. We are however opposed to extending their role into the delivery of public services.


17. Underpinning PCS concerns about involving the third or private sector in delivering the social fund is our total opposition to the jobs of our members being transferred out of the civil service into the third or private sector. The proposals as they currently stand would appear to include the possibility of a transfer, under the TUPE regulations, of PCS members into the third or private sector. PCS is absolutely opposed to such a development.


18. Our members are proud to be public servants and proud of the successful work they do in delivering the social fund. They do not want to work in organisations that seek to expand or make profits at the expense of the poor.


19. The proposals in the bill run the risk of scrapping an effective system and replacing it with an untried and untested alternative without the resources to deliver. PCS believes that this would be an unacceptable risk to take.


20. When the social fund was first introduced, the aim was for DWP staff to provide money advice to clients and a significant investment was put into training staff to do so. Over the years this role has largely faded away but PCS can see no reason why DWP should not revisit this concept.


21. There has been a significant increase in the volumes of claims for social fund loans which has put pressure on our members in DWP. According to the social fund commissioner's annual report, it is failing to cope with requests for help. Sir Richard Tilt, the commissioner, said applications for loans had gone up from 1 million to 3 million over the past couple of years and the system could not cope with demand. Fewer than half of those who phoned a crisis loan telephone line managed to get through to an adviser. In some places, such as Bristol, the success rate was less than 7%.


22. Tilt called for the 141m-a-year fund to be increased to 200m as a matter of urgency, given the current economic conditions. He warned that failures in the system would end up driving people into the arms of loan sharks.


23. The response of DWP to the increased demand for Social Fund has been to propose restricting access to crisis loans for living expenses to a maximum of three loans in any 12 month period. This proposal is with ministers at the moment. If it is decided to introduce this restriction the most likely outcome is to drive the poorest people in society into the arms of loan sharks.


24. PCS wants to see the government scrap the proposals relating to the social fund contained in the welfare reform bill. Instead they should be replaced with plans to provide more grants not loans and introduce measures to increase levels of accessibility. We also think the department should increase the staffing numbers to help to deal with the large number of claims received.


Privatisation proposals: Jobcentre Plus


25. Clause 25 of the welfare reform bill allows for the contracting out of functions currently carried out by Jobcentre Plus (JCP) employees on behalf of the Secretary of State.


26. The trade union movement are fundamentally opposed to the contracting out of Jobcentre Plus.


27. From evidence available it is clear that privatised employment programmes do not outperform those provided by Jobcentre Plus. When the public and private sectors are allowed to compete on equal terms the result is a decided victory for Jobcentre Plus.


28. 'The 25 PSL (private sector led) teams as a whole only met 78% of their job entry targets in year one of phase 3 of action teams, compared to the 40 Jobcentre Plus teams, as a whole, who achieved 140% of their job entry targets. PSL teams, as a whole, achieved 69% of their outcomes from non-JSA customers, compared to Jobcentre Plus teams, as a whole, who achieved 76% (again, exceeding the target of 70%). PSL teams, as a whole, moved into work proportionately more clients who had been out of work for a short time than Jobcentre Plus teams. They were also proportionately more likely to work with clients with just one of the target disadvantages than Jobcentre Plus teams, as a whole, were.' Review of Action Teams for Jobs research report 328, IES for DWP 2006


29. The Observer newspaper in March 2009 reported in the article 'Minister in welfare cover up row' that the Observer obtained secret documents which were sent at the end of January by senior officials at the DWP to Jobcentre Plus directors and managers containing figures showing how private firms had performed far worse than Jobcentre Plus in delivering the Pathways to Work programme.


30. An official DWP report marked 'restricted' revealed how the private companies placed just 6% of incapacity benefit claimants on their books into work, rather than the 26% they had claimed would be possible when they bid for contracts. This compared to 14% achieved by Jobcentre Plus during the same period. The report described the performance of the private contractors as 'not satisfactory'.


31. Nevertheless the government continue to press ahead with the privatisation of employment services despite evidence that in-house provision performs better. The welfare reform bill goes even further than the current arrangements and allows more services to be contracted out.


Private sector performance


32. The 'Public Services Industry Review' by Dr Julius reveals privatised services now represent a 79 billion industry, a 130% growth since 1995.


33. Here are some examples we have previously highlighted which are associated with privatised services:


34. The Manchester Evening News reported claims by jobseekers that they were being treated 'like cattle' by A4e (a private sector provider of back-to-work provision). They said up to 200 of them had been crammed into premises where they had two computers, no telephone access for job searches and just one toilet each for men and women which were 'filthy'. One jobseeker, Mark Jones, told the newspaper: 'in six weeks I did absolutely nothing all day, every day. No training was offered, no job search facilities made available and no work experience placements arranged'.


35. Apprenticeship group Carter and Carter had DWP contracts for Pathways to Work and for the New Deal for Disabled People. But the company went into administration in March, 10 months after the death of its founder Phil Carter. The company received most of its funding from DWP contracts and the Learning and Skills Council, but by January 2007 had net debt of 86 million and its shares were suspended in October. In November, the Guardian newspaper reported it had to return government payments for tuition at its North East Skills unit 'after an inquiry found falsification of some supporting documentation'.


36. Instant Muscle, another DWP provider went bankrupt earlier this year. The firm had won an 11 million contract last November to carry out interviews on claimants in Surrey and Sussex. Established as a charity in 1981, Instant Muscle became a company in 2005 but retained its charitable registration.


37. It has been reported by the Daily Mirror that New Deal contractor Maatwerk has been dropped after up to six rogue staff made 7,000 jobseekers sign fake papers saying Maatwerk found them jobs, in order for the Maatwerk staff to qualify for payouts of up to 3,000 a time. Jobseekers were paid 150 each to sign bogus forms, although they were thought not to have known they were helping to cheat taxpayers. One Maatwerk insider was reported as saying 'They're often financially challenged, so 150 for signing a paper was an easy option. But suspicions were raised when some staff hardly left the office, yet claimed for large numbers of jobseekers.'


38. Further examples of unsatisfactory practices include Business Employment Services LTD (BEST) who were awarded a 40 million contract by DWP in 2006 to provide training for long-term job seekers in West Yorkshire. BEST have been described by users as hopelessly inadequate with up to 20 people sharing two computers on which they are supposed to complete training and job searches. Other users have complained that they were advised to complete timesheets that indicated training had taken place when the offices were closed on a bank holiday. On another occasion all present at the training course were advised to complete two forms to state they were receiving training when in fact they were told to take the two days off to look for work outside of BEST offices.


39. In the UK, an 85 million contract has been awarded to the Australian firm Work Directions Ltd who are one of the largest providers of employment services to the Australian government. Work Directions UK, a subsidiary of Ingeus, has won six of the first 15 contracts put to tender. The organisation has been investigated for breaking labour laws in Australia by underpaying workers and was found to have technically broken the law and agreed to reimburse money to staff. The organisation had used privacy arguments to frustrate auditors checking up whether it had spent taxpayers' money correctly. The organisation has also lost a number of Australian government contracts because of its poor performance.


40. In August the Observer newspaper in 'Firms in fraud probe set for Whitehall cash' reported that two companies subject to a fraud enquiry were on the shortlist for contracts to get disabled people into work. Out of 28 regions across Britain, A4e was listed in 9 regions and Working Links was listed in 16 regions. It was reported that the DWP risk assessment division had found evidence of fraud in at least two companies but did not report its findings. In addition, the Third Sector magazine in July 2009 reported that the 'Freedom of Information Act will not apply to charities'.


41. In the September 2009 edition of the magazine Private Eye, it has been reported that A4e sponsored a meeting with the minister of state for employment and welfare Jim Knight on 'making welfare to work work in the recession'. A second meeting on the same subject and paid for by A4e featured Secretary of State for work and pensions Yvette Cooper. She was on the panel with A4e boss Mark Lavell.


Regulation and accountability


42. At present there is no public information available which outlines the costs of individual contracts and their associated aims and objectives (and even less information is available about sub-contracting arrangements).


43. PCS believes public funds should be accountable to the electorate and not hidden in commercial in confidence clauses.


44. PCS believes that the necessary accountability requires high levels of regulation, additional duties to publish information, the requirement for service user feedback and intensive scrutiny and auditing.


45. The current system of regulation does not work. For example, there are no checks to ensure that people have the jobs that the contractors claim and there are no requirements for contractors to provide evidence before they receive payment.


46. PCS believes that an open and transparent evaluation of pathways to work and phase one of the flexible new deal is essential. We believe the contracted programmes are not open to democratic or public scrutiny nor indeed are they accountable. Further tendering of DWP employment provision, including phase 2 of the flexible new deal, should be suspended until this evaluation is completed.


47. The lack of transparency in DWP contracts extends to the customer complaints process. While it clear to customers how, and to whom, a complaint against Jobcentre Plus should be made, the same does not apply if a customer wishes to complain about the service of a private provider. PCS believes that a robust complaint process for provider-related complaints needs to be established, with complaints being overseen by DWP rather than by the contractor.


48. The centralisation of contract management in DWP has weakened the link between Jobcentre Plus and the providers. The relationship is more distant and much of the local interaction and detailed knowledge of the business, that was essential to effectively monitor provider perfomance, has been lost.


49. Private companies continue to escape criticism and scrutiny. They have had government work outsourced to them and they have been shielded from any suggestion of incompetence in case the public discovers that decades of privatisation have not produced the improvements in performance that its protagonists have promised.


Treatment of staff and clients


50. PCS believes the evidence available demonstrates that the profit motives of the private sector run against the interests of unemployed people and the staff who deliver services.


51. PCS wants fair treatment at work as well as in service delivery. We believe the customer charter proposed by DWP lacks information about individual entitlements to services and the document is too vague to offer clients a sufficient understanding of their rights. The charter should clearly set out the minimum service standards clients are entitled to receive.


52. Staff are rightly fearful of being transferred to the private sector as pay, terms and conditions can be detrimentally affected and staff may also face harsher working practices and discrimination in employment.


53. For example, two employment tribunal cases against the same Christian charity, the Reading-based Prospect, heard that the organisation which receives public money for its work with people with learning disabilities had discriminated against two employees on religious grounds. Prospect has more than 900 staff around the country.


54. Louise Hender (supported by Unison) failed to get a promotion because she was not a Christian, while Mark Sheridan (supported by the British Humanist Association) felt he was being forced to uphold the organisation's policy which said non-Christians could not be employed in permanent posts. The tribunals upheld their cases for constructive dismissal.




55. The evidence available demonstrates that privatised employment programmes do not outperform those provided by Jobcentre Plus. Nevertheless the government continue to press ahead with the privatisation of employment services despite in-house provision performing better.


56. Our members in Jobcentre Plus have demonstrated that public service works best. They have successfully adapted to the doubling in customers in the last 12 months. No private sector organisation would have had the capacity or the will to respond as quickly or as effectively to such challenging circumstances.


57. The welfare reform bill goes even further than the current arrangements and allows more services to be contracted out.


58. PCS will continue to campaign to oppose the welfare reform bill and the privatisation of public services.


59. A major flaw in the DWP contracting strategy is the refusal to consider in-house bids, despite Cabinet Office guidance to the contrary. PCS made a strong case for the flexible new deal to have an in-house bid but this was rejected by DWP.


60. We firmly believe that our members in Jobcentre Plus would have been able to provide a higher quality and more efficient service than profit-motivated contractors.


61. We believe services are best improved by having an active and collaborative contribution from staff, external organisations and service users.


62. We hope the committee will challenge the ideological drive to outsource more of our public services.


October 2009