UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 718-iii

House of COMMONS

Oral EVIDENCE

TAKEN BEFORE the

Work and Pensions Committee

Work Programme: Providers and Contracting Arrangements

Monday 14 March 2011

RT HON chris grayling mp, mark fisher and alan cave

Evidence heard in Public Questions 148 - 227

USE OF THE TRANSCRIPT

Oral Evidence

Taken before the Work and Pensions Committee

on Monday 14 March 2011

Members present:

Dame Anne Begg (Chair)

Harriett Baldwin

Andrew Bingham

Karen Bradley

Alex Cunningham

Kate Green

Mr Oliver Heald

Teresa Pearce

________________

Examination of Witnesses

Witnesses: Rt Hon Chris Grayling MP, Minister for Employment, Mark Fisher, Jobseekers and Skills Director, DWP, and Alan Cave, Delivery Director, DWP, gave evidence.

Q148 Chair : Thanks very much for appearing before us this afternoon, Minister. Perhaps you could introduce your colleagues on either side for the record. I do not think you need to introduce yourself.

Chris Grayling: It is a great pleasure to be here. On my left is Alan Cave, who is overseeing the contracting of the Work Programme. On my right is Mark Fisher, who heads up the policy development for the Work Programme. You have the full range of activity within the preparation here today.

Q149 Chair : It is a pleasure you are here. This is obviously our last evidence session before we agree the Report on the Work Programme, which we hope to publish sometime after the Easter recess. Can I just begin by asking a few questions about the transitional arrangements, and then we will get into the meat of how the Work Programme will actually operate? We have had some correspondence based on some of the concerns raised to us by ERSA. The answers that you gave us were trying to make sure that there was no gap for the client group, but their concern was particularly about what is going to happen with regards to the staff, particularly those who are presently delivering Pathways to Work and New Deal for Disabled People, where there will be a gap. Already some organisations are having to issue redundancy notices to their staff, but these might be the very staff who will be required, once contracts are let, to deliver some of the specialist provision. Can I just ask very quickly: for those staff with that gap, will TUPE apply to them or not?

Chris Grayling: We do not think TUPE applies to Pathways staff. Pathways is coming to an end anyway. It was due to be ended by the previous Government. It has been given a pretty heavy thumbsdown by the NAO and by the Public Accounts Committee. In terms of the support that is provided to people effectively with a lower level of intensity, those who are not on the Work Programme, who might previously have gone through Pathways, will continue to receive support, but, according to our new flexible approach, what we have done is devolved funding to the front line of Jobcentre Plus, and there will not be a simple onesizefitsall model in future. There is a genuine change in provision at this point.

In terms of the continuity of contracts, if you look at what we have actually contracted for from the organisations that are delivering Pathways to Work, it effectively involves delivering six workfocussed interviews over a period of time. We will be referring people to Pathways to Work up until eight weeks before the end of the Pathways contract. Previously, the support that would have been provided to those people would have taken place over many months. The organisations involved have received through the service fees a payment for each person who is referred to them. They have taken the decision-or some of them have taken the decision-not to continue to provide that support after the termination date of the contract, even though they are still entitled to collect outcome payments for some weeks after those contract payments are over.

I looked at this quite carefully, and I can see no obvious reason why an organisation that has a contract that terminates in late April, that has the ability to collect outcome payments for a number of further weeks and that has already been paid for delivering six workfocussed interviews over an extended period should feel the need simply to make its staff redundant in late April. I think that is just unnecessary. I think we have paid for a lot of support that they may not actually be delivering, and I can see no obvious reason why they should simply bring the shutters down on that date.

Q150 Chair : Certainly, individuals are already facing that redundancy. I have had an email from a lady who said they were originally under the assumption they would be transferred under TUPE to the Department for Work and Pensions until the new Work Programme is awarded.

Chris Grayling: We have not given anybody any indication to that effect. Clearly, I cannot control what employers may say but, from our perspective, there is no TUPE implication at the end of Pathways.

Q151 Chair : Why not? Although Pathways is coming to an end, the actual work or similar work to what Pathways is delivering, even within the Work Programme in the definition you have just given, will still be the same kind of work, so why would TUPE not apply? It has applied up until now to all of the other work programmes, some of which have been quite different from their predecessors.

Chris Grayling: I gave you my view and my colleagues may wish to come in on that, but I think what Pathways has been providing is very different from what the Work Programme will be providing, and will be different in terms of flexibility and tailoring of support to individuals for those who are supported by Jobcentre Plus. There will not be a onesizefitsall model in future, which is what there has been through Pathways. I do not know if either of you wants to come in.

Alan Cave: Just to add a very brief point: the Pathways model is very defined and quite specific in terms of the activities. It is limited, but it is workfocussed interviews defined in a particular way, and that is just not the service that is going to be undertaken inside Jobcentre Plus. Our position has been clear; we have been in correspondence with ERSA and with individual providers about this, and we have made it clear all the way through that we do not believe this is a case of continuity of service or even continuity of service that is sufficiently like the previous one to justify the TUPE transfer into Jobcentre Plus.

Chris Grayling: I would reiterate the point that we pay an upfront payment to Pathways providers that amounts to 60% of the fee they can earn in total if somebody eventually ends up in work. We will have been referring people to Pathways providers pretty much right up till now for a programme that has normally lasted a year. They are the ones who are choosing to bring the shutters down on 20whateveritis of April. There is no obvious reason to me why they should not continue, given the fact that we have paid them a service fee for that particular piece of work, to provide at least part of it for the relatively short period of time, six to eight weeks, before the Work Programme starts. It is their decision to let the staff go. Only they will know whether that it is a wise decision or not, whether they are likely to get a Work Programme contract or whether their staff are appropriate to take on the new roles that they envisage.

From my point of view, we have paid them to deliver a service that they will not have delivered in full. They can continue to earn outcome payments for six weeks after the end of the contract date. It is absolutely not apparent to me why they should just pull the shutters down on the final date of the formal contract period.

Q152 Chair : You make your case for why you are taking the decision that you have with Pathways. What about the New Deal for Disabled People and the New Deal for Lone Parents, which will also experience that same kind of gap? Will the people who are working on those New Deals be TUPE’d into the new Work Programme if their organisation wins a contract?

Chris Grayling: The New Deal for Disabled People is, in delivery terms, very similar to Pathways, so the situation applies to both New Deal for Disabled People and for Pathways. Of course the situation for lone parents has changed pretty dramatically now because lone parents are moving at a much earlier child age than was the case previously to Jobseeker’s Allowance, and will be going into Jobcentre Plus and then receiving support subsequently through the Work Programme. That area is going through a big transition. Younger lone parents will continue to get access to the Work Programme on a voluntary basis using European Social Fund money, but lone parents with children over the age of five will now go into the conventional stream, which would take them through Jobcentre Plus and then into the Work Programme after 12 months.

Q153 Chair : The difficulty I have is you are talking about the contracts, the way the payments are structured and everything, but actually, for the individuals who are delivering the service-the frontline personal advisers or condition management-will actually be doing the same job in the Work Programme that they are presently doing. It is going to be very hard for them to understand why the job they are doing today will be so much more different from the job they could be doing once they are delivering the Work Programme, and why TUPE won’t apply because, as far as they are concerned, they are doing the same job.

Chris Grayling: I think you need to wait to see the final shape of the bids. I have to say I have not seen the final shape of the bids; officials have, but clearly Ministers are not shown contractual submissions until the point a decision has been reached-until they have been fully evaluated. I do not think you can assume that the Work Programme business model will be the same as applied under previous programmes. You may find a very different approach being taken by companies. Instead of providing the traditional model, for example in a backtowork centre, I know one or two overseas firms have in the past had their own restaurant. One of the Flexible New Deal providers has already established a dummy call centre in Scotland. We may see a completely different model to try to move people into work, and I do not think you can assume that the nature of the jobs will be the same.

We are talking about contracts that come to an end in late April. The start date for the Work Programme is from June onwards. We are talking about big organisations with big capital bases that will be taking on the Work Programme. I do not think that there needs to be a major transitional hiccup in the staffing. We have covered, in most cases, the transition through the existing New Deals. We have taken the view with Pathways that Pathways can peter out and come to an end, but there is no reason for the shutters to just come down. I personally think that the arguments about redundancies are misplaced, and TUPE will depend very much on what the chosen model for the Work Programme is. Good people with a role will undoubtedly find a place in the Work Programme.

Q154 Chair : You would agree, I am sure, it would be a shame if those good people end up with a gap in their service and go off and do something else, because very often the good people are providing the specialist help at the moment.

Chris Grayling: It would be a shame but there is no reason for it to happen. It will have been a conscious decision, in the case of Pathways, by providers not to complete the job they have been paid for. Contractually, they can do that. Whether morally they should is quite another question.

Chair : We will move on now to the design of the Work Programme.

Q155 Harriett Baldwin: Do we know what date the announcement is going to be made?

Chris Grayling: It will be in early April, but we have not absolutely finalised the date. It will be in the first part of April.

Q156 Harriett Baldwin: The requirement on prime providers is that they do need extensive access to capital in order to be prime providers. We did have testimony from several witnesses who said that the ability to handle these large outcomesbased contracts prevented voluntary sector organisations from being prime providers. Was there a reason why the Government decided to operate a prime provider model so that voluntary organisations were unable to access the scheme as primes?

Chris Grayling: That was not our intention and it is not in reality what has happened. I think either 10 or 11 of the companies, organisations or collections of organisations that were appointed to the Framework in November were either entirely or partially voluntary-sector organisations. Was it 10 or 11?

Alan Cave: 12 actually.

Chris Grayling: 12-right. We were always aware that there was a legal difficulty for some voluntary-sector organisations to raise capital for commercial purposes to take a risk. One of the things that we sought to do very early on was to encourage investors to form partnerships with voluntary-sector organisations so that they could combine financial and delivery skills together in the same group. That is certainly what seems to have happened. We actually had a lot of bids from voluntary-sector organisations. I think we have a good mix of participation in the Framework. Obviously I cannot prejudge the outcome of the actual bidding process itself, but I hope we will see some voluntary sector participation in the prime contractor list, when it emerges in April.

The real strength of the voluntary sector is not in organisations of the scale able to carry a payment-by-results regime. It is the smaller charities that make the difference on the ground, and we gave a very clear message to all of the bidders to join the Framework, and indeed the Framework participants as they bid to get on the Work Programme that, if you do not assemble-to pick a topical phrase-a coalition of organisations that has a mix of skills to address the specialist needs, to address the local challenges from the specialist mental health charity to the small neighbourhood project that is good at working with former gang members in a troubled area of London, for example, if you do not come with that group of organisations in a team alongside you, then you will not get a contract, or at least you will be at the back of the queue to get a contract.

One of the issues has been what the terms of trade are between the big guys and the little guys. I would love to claim the Merlin Standard as a great innovation of the new Government, but actually the man responsible for it is Alan. One of the great discoveries was that Alan had been working on this, and it has now won an award across Whitehall for best practice in encouraging participation of small organisations. Basically, for want of a better way of phrasing it, the Merlin Standard says, "If you duff up the little guys, we will duff up you." That can include us withdrawing their contracts. What we have sought to do with both of those, the clear message about participation and the Merlin Standard, was to strengthen the hand of the voluntary sector when it came to actually negotiating terms with big organisations that might hold the prime contracts. I am very confident we will have good participation from the voluntary sector come the announcement in April.

Q157 Harriett Baldwin: I know colleagues have questions on the Merlin Standard later, but I wanted to go back to the regional model for the contracts. Typically there are two prime providers per region. We have had some evidence that says it would be better to have one, because that would be better value for money for the taxpayer. We have had some evidence that says that actually you need to have at least three, because then there will be more competition to drive up standards. Could you comment a little bit on that?

Alan Cave: As you will know, the geography of this is the regional lots, which the Framework is divided into, where typically we have seven, eight or more providers who are prequalified. With the exception of Scotland and Wales, we have divided each of those regional lots into subregions-typically two or three-so that we end up with 18 contract package areas, we call them.

We are very keen to ensure that there is proper competition in each of those contract package areas. As you say, there are two or, in the case of the bigger conurbations, three prime providers there from day one. The rationale for that is that we just believe that the potential valueformoney loss of having duplicate infrastructure will be more than outweighed by the competitive tension involved in having primes always competing for business, always needing to do better than the organisation alongside them, if they are to win more of a share in that contract package area.

We have also had an eye to making sure that the whole system gives us contingency in the case of a provider underperforming or, indeed, underperforming to the point that we need to take the contract away from them. It gives us the strength and depth to be able to do that.

Q158 Harriett Baldwin: Are contractors limited to a maximum of seven regions?

Alan Cave: No member of the Framework is on more than seven regional lots and they can bid, therefore, for as many contracts as are in that regional lot. It is complicated. Given that some of the regions are subdivided, you could be on seven regional lots and be able to compete for more than seven contracts.

Q159 Harriett Baldwin: What was the rationale behind the seven, because some organisations felt that a national footprint would have been even better in terms of delivery?

Alan Cave: It was mostly driven by our assessment of the capacity of the organisations who bid for us to deliver quality service across a range of different areas. It was a very careful analysis of both the financial and management capacity of all the organisations that bid to get on the Framework, and our conclusion from that was that that seemed to be a sensible and prudent scene to set.

Chris Grayling: We have consciously tried to push the envelope to get the best possible deal for the taxpayer, as you would expect, whilst still having a contracting model that we believe is profitable, and I believe it is potentially very profitable if the organisations concerned, and only if the organisations concerned, are very successful at getting the hardest to help into work. I do not mind providers doing well commercially if they are delivering the kind of results we really need.

Now, we have had some within the industry say we push them too far; we had five of the organisations on the Framework drop out of the Work Programme bidding, and so we have taken an intentionally cautious approach. What we cannot afford to have is a situation where we are too exposed to individual organisations and the possibility that they might have got their business planning wrong. One of the instructions I have given to officials all the way through, without interfering with any of the detail, is to say we have to be mindful of the warnings we have been given from outside and, therefore, act in a way that spreads the loan in the interest of the taxpayer. What you do not want to do is to have two organisations for the whole lot, and they both go bust. Then you have a problem.

Q160 Harriett Baldwin: The idea behind a black-box approach has been welcomed by I think all the evidence that we have received, but there was comment from the RNID that it would prevent very good examples of practice being learnt from and replicated across the country quickly. I just wondered what steps the DWP would take to disseminate good ideas.

Chris Grayling: I do not think that is right, to be honest. We live in a pretty transparent world and I expect, if somebody is doing really well, there will soon be lots of people sniffing around and finding out how it is working and what they are doing differently. We certainly intend, as soon as we practically can, to make public relative information about the performance of providers to demonstrate who is doing well and who is not. I confidently expect us to see the chatter go around what is a fairly small industry, relative to the size of some, and people to be well aware of where there are good things happening and to be desperately trying to learn those lessons. Indeed, the nature of the payment by results regime almost requires you-if you have shareholders tapping on your shoulders saying, "How come that guy is doing better than you are? Find out"-to be chasing that best practice.

Mark Fisher: If I may add, I think there will be a burgeoning market for great ideas about how to get people back to work. In a sense, what we have not built here is an employment programme; what we have built is a set of financial incentives to help people get people back into work. Out there in the country, I think there should be a growing market in great ways of getting people back into work.

Q161 Chair : Will the Government resist the temptation to meddle, because Governments always meddle?

Chris Grayling: Yes, we will.

Q162 Chair : Absolutely?

Chris Grayling: It is so fundamentally important that we do not, the moment we start saying, "You need to do it this way, not that way," is the moment we undermine the whole principle of the Work Programme.

Q163 Kate Green: I just wanted to ask about the corollary of the spread of best practice, which is what happens if you are aware of bad practice going on within the black box, and how in particular claimants’ rights and interests would be protected.

Chris Grayling: There are two aspects to this. First of all, if there was a genuine individual problem, which is not resolvable within the relationship between that individual and the provider, they can appeal; they can take their issue to the independent case examiner. More particularly, for bad practice on a commercial basis, we have the ability within the contract to manage market share. If we are dissatisfied by the performance of a provider, we can shift market share away from them. If they have performed very badly, they will be in breach of contract. Within the mix, we have set minimum performance standards, so that effectively they cannot just sink down and cruise along at a very low level. They will be in breach of contract then and we will remove them.

The whole payment-by-results approach makes it very difficult for people to underperform without working hard to do something about it, because they will lose money and be in severe jeopardy if they do. We have the mechanisms to move others into their place if they really are doing that, but the whole focus of the way the Work Programme is structured is to make it very difficult for people to sit there underperforming without huge internal pressure to do things better.

Alan Cave: Can I just add one thing to that, which is that there is a lot of transparency around it? It is a black box, but that does not mean to say that stuff is hidden away. Each of the bids will contain a very explicit statement of what the provider is prepared to publicly set out as their minimum set of standards-their minimum offer to customers, if you like. That will be turned into leaflets, which everybody going into the Work Programme will get. We will agree with providers what the key performance indicators are around those minimum service offers, and they will be contractual terms.

This is trying to get a balance. We are not prescribing but, if a provider sets out what they themselves agree is an acceptable level of service provision, we will hold them to it and we will make sure every customer going into the Work Programme knows both what to expect and how to complain if they feel they are not getting it.

Q164 Mr Heald: Of course, it is right that you should be able to manage these contracts effectively and ensure good performance, and if necessary remove a prime. Equally, it is important that a prime is able properly to manage its subcontracts and, if there is poor performance, remove a subcontractor. To what extent do you respect that and is the Merlin Standard going to interfere with it in any way?

Alan Cave: I think you have summed it up very accurately. What we have made very clear is that we won’t let a provider who sets out their consortium, their supply chain arrangements, to simply and unilaterally change that, so they would need to have any changes agreed with us. We have been very clear, and I have been very clear and the Minister has been very clear, with the subcontractor community that, if the case is that that would lead to an increase in performance, then of course we would accept that, because this is not designed to lead to inefficiency in the supply chains. Again, I think the issue is about transparency and doing this in an open way. The Merlin Standard simply in this respect ensures that this is done properly and in a way that is open, above board and in line with what was agreed at the beginning of the process.

Q165 Mr Heald: The reason I ask is that, when we were in New York, we met some primes or the equivalent. Two of the risks that they felt they had were, first of all, the risk that the state, in your case the Government, would interfere in the black box, and the other was that they would not be able or they should be able to very closely and effectively manage their subcontracts, because they are reliant on these subcontractors to get the job done, in order to get their money.

Alan Cave: Absolutely, and this is why we have been clear. Once the thing is up and running, it is about performance; it is about proper behaviour and it is about performance. Those two should be mutually reinforcing.

Chris Grayling: There is no way we would stop a prime contractor sacking a subcontractor if there was a clear performance issue. There have been tales in the past of bids coming in with nice supply chains attached to them, and the next day the whole supply chain gets sacked. That is clearly not acceptable; that would be a breach of contract, and the prime contractor that did that would be out on their ear. Equally, if we discovered that a prime contractor was just not paying a subcontractor for example, again we would seek to intervene, but, if somebody is not performing, then somebody is not performing.

Q166 Harriett Baldwin: The funding for the Work Programme comes out of future savings on benefits effectively, so funding is dependent on taking people off benefits rather than necessarily finding people jobs. I just wondered if that is going to lead to any perverse incentives, such as people being discouraged from going into selfemployment or parttime work, where they might take a bit longer to come out of benefits?

Chris Grayling: No, it should not do, because, from the point of view of the providers, what we are looking at is clear employment or selfemployment outcomes. I would not have a problem with that at all. In fact, I would be actively encouraging providers to pursue selfemployment options. Indeed, there will be different aspects of support for selfemployment available across Government. I am very clear that selfemployment is a valid job outcome and apprenticeship is a valid job outcome. No, it is not about saying there is any particular model that has to be the case. What we certainly won’t be doing is paying a provider if somebody turns up at the door of the Work Programme and says, "That is not for me; I’m out of here," and signs off benefits.

Q167 Chair : Can you explain something about the AME/DEL switch, which has been puzzling me? As I understood it, the Work Programme is going to be paid for because of the future savings in benefit. Of course, not everybody who is out of work actually receives benefit. Once they have run out of the contributory element, whether it is JSA or, under the Welfare Reform Bill, ESA after a year, it is then down to household income and large numbers of the people who we have started off on contributory benefit end up not getting any money from the state at all. There cannot be any future savings by getting them into work, so will they just be ignored? Where is their role in the Work Programme? You have no sanctions on them because they are not getting any money. You cannot take their sanctions away; you cannot say, "I am going to take your benefit away if you do not work," and you cannot put obligations on them because they are not getting any state money anyway.

Chris Grayling: In terms of the contributory people, you are absolutely right that we cannot mandate anyone who is not receiving benefits to go the Work Programme. First and foremost, the people on the Work Programme will be those in receipt of Jobseeker’s Allowance and that will be incomebased Jobseeker’s Allowance. At the moment, neither Jobcentre Plus nor any other part of Government offers somebody on contributory JSA more support than provided through the Jobcentre in that first sixmonth period, and we will obviously have some clear offers for that group-routes to selfemployment, routes to work experience, and so on and so forth. No past programme has provided support for that particular group of jobseekers.

Where we will provide support is for people who are on contributory ESA. One of the concerns I had was that people migrating off incapacity benefit on to ESA who are only eligible to receive contributory ESA would fall through the cracks. Even though they had been on incapacity benefit for a long period of time and might therefore struggle to get back into employment, we would not be providing them with support. What we have done within the planning for the Work Programme is we have specifically provided for those people to be able to receive Work Programme support if they want it. We cannot force them, because they are not receiving benefits, but they will be able to voluntarily enter the Work Programme and receive the same support as everybody else.

Q168 Chair : We have questions about the ESA cohort coming up later but, if we stick with the JSA cohort, in other words the contributory element that will have run out before they would ever qualify for the Work Programme, there are two things. It would appear that those who have worked all their life, have made their contributions and have a working partner at home are actually going to get less help to get back into work than those who have been out of work for a long time. In fact, they are the ones who could end up being parked; they could be the new stock, if you like. They are going to be parked because there is no intervention to help them get into work. They are very much going to be left to their own devices. There is a group of people who are actually going to feel that, at the very point that the welfare state was meant to act as a safety net for them, they have discovered there is no welfare state.

Chris Grayling: That has always been the case. Those people have always received support through Jobcentre Plus for a limited period of time and then, after that, the state does not provide them with support. Now, there are a number of alternative things the state could do to support that group in particular, but of course those all carry a funding issue with them. We do not have resource to expand employment support into that particular area, where, in the past, we have never provided support.

Q169 Chair : Surely the Government is also missing a trick because, if you can get these people into work, then the Government would get money back in terms of income tax and National Insurance contributions, which they are not getting because they are not getting any help. It will be exactly the same type of people as the ones who are on incomebased JSA; it is just they happen to have a working partner. They still have the same barriers to work, surely. Are they not going to be left behind?

Chris Grayling: We are offering some support that will be eligible to those people-the growth of the Work Club network, for example. But to be clear: the one group we do not have money to provide for anew-this is a group that has never received support in the past of this kind-are those who are on contributory JSA.

Mark Fisher: To separate out two things in our mind: as to eligibility for benefits and therefore eligibility to go on the Work Programme, as the Minister says, we have never offered that sort of help to people who are not actually on the incomerelated part of Jobseeker’s Allowance; and the second thing is how the AME/DEL switch actually operates, which is not on an individual basis. Your entitlement to Work Programme support does not depend on a particular amount of benefits being paid to you as an individual; it is a book transfer between us and the Treasury, based on the performance of the scheme as a whole, not on an individual entitlement. There will be people who are not actually on benefit or who do not have a huge amount of benefit who will receive full support from the Work Programme. It is just that it does depend on whether you are actually on benefit in the first place.

Chris Grayling: There is one avenue that those people can follow if they want to receive support. After the end of the contributory period, you are entitled to continue to receive credit through JSA, which does enable you to continue to receive the support that other people would receive, and they can certainly enter the Work Programme if they continue to sit within the JSA system, receiving credits.

Chair : Those are National Insurance credits, you mean.

Chris Grayling: Yes.

Q170 Chair : From a question that you answered last week: quantify how big that group is. You do not seem to know the numbers who will not qualify for benefit once the contributory element has run out. It seems that about half of the cohort might get something contributory and incomerelated, but actually that is the whole half that does not get anything. Most people out of work and looking for work do not actually get benefit. Is that not the lesson from some of this?

Chris Grayling: It is not most but there is a fair number. One of the reasons it is difficult to be precise is because they do not receive benefit. What we do not have are data about how long those people who are unemployed but do not receive benefit take to move into work, to the level of detail that we clearly have within Jobcentre Plus and for those who are in receipt of incomerelated benefits.

Q171 Teresa Pearce: The DWP was criticised by the National Audit Office in its procurement with the Pathways to Work programme and accepting bids that were unrealistic. What lessons has the DWP learnt from that with this procurement process? Are you confident that that won’t happen again?

Chris Grayling: We work very hard to try to get this right. We modelled the Work Programme in fine detail. What we did is we recruited a number of elements of outside advice as well. We recruited KPMG to effectively be shadow bidders to build a shadow business model for a putative provider to identify what the cost base of that putative provider would be, and to work out from that provider’s perspective what level of revenue they would need per placement to be profitable.

We recruited the former head of corporate finance at Powergen to work internally with the team to look at our own modelling, and the way in which we were shaping the Work Programme business plan over a sevenyear contract period-five years plus the two years when the last people who are referred are on the Programme,. We also had input from UBS, because one of the things I was very sensitive about was, if I were advising a bidder, how I would structure a bid in order to try to extract the maximum possible value from the Government. On their side of the fence, that is what they are after. Basically we brought in UBS and said to them, "Work out how you would get lots of money out of this, and we will close the loopholes." We went through this all very systematically and came up with a model. I should say in terms of UBS, another factor in the current climate was: is the proposition investable? Was it realistic to believe that people would come forward with capital to support the bidders?

We wrapped all of that together in a package that we believe is respectably profitable but not stupidly so, that enables providers to do very well commercially if they are really excellent at placing some of the hardest to help into work, that stops them making excess profits across the course of the contract and also requires an acceleration in performance. What I did not want to have happen was for a provider to be able to achieve a certain level and then just cruise there for the whole contract. The price falls as the contract goes on. In order to achieve the same level of profitability, they have to increase performance as time goes by.

It would theoretically have been possible for a provider to say, "Right, what we will do is we will pick the brightest 20%. We will send everybody else down the pub and we will just work with that 20%. We will scale for that 20%, and just make money out of them." Therefore, one other thing we did was set a minimum performance level that was higher than the deadweight level, so they could not possibly predict who the best people to work with were. We said to them, "If you fall below that level, you will be in breach of contract." What we are doing at each stage is to try to drive performance above where they have been in the past, keep performance accelerating, allow them to do well if they do well at the things we want them to do, but to make a sensible profit otherwise. All the external advice we had suggested we got it about right. The fact we had five organisations drop out because they said it was too tough, but 30 who bid and have submitted 180 bids across the whole of the country, suggests to me-touch wood-we got it about right.

Q172 Teresa Pearce: Is there anything in that process that you have looked at in depth to stop a prime from setting up, say, an employment agency and feeding their own people through and getting a doublecut? Do you see what I mean?

Chris Grayling: I do. If they can create a model that does that, they are smarter than I am. Basically the structure of the payments means that, for a JSA client, you cannot earn the maximum fee until that person has been in employment for 18 months. For an ESA client, the maximum is two years, three months. I think they would be struggling. To be honest, if they wanted to create employment for somebody for that length of time, they will have done the job anyway. We do not think it is possible to do that.

We may well see some form of temporary employment measure set up by them in order to try to help people make the move into work, but I do not believe it is impossible to do what has been done in the past. It has undoubtedly been the case in the past that some providers, where the outcome payment was simply based on a oneoff job outcome, would set up an agency, hire them for a week, then sack them and take the job-outcome payment. You cannot do that in this structure.

Mark Fisher: I was with a Flexible New Deal provider the other day that effectively had a cleaning business as a separate company. Essentially, you can view this model as subsidising. If somebody genuinely gives somebody a cleaning job for two or three years, then there could be a form of subsidy going towards that. It is quite legitimate under the black box if they can make money with that, but, as the Minister says, what you cannot do is simply put somebody in employment for a week and claim a payment. You have to keep somebody in sustained employment within that constraint. There is a degree of employment subsidy.

Chris Grayling: If you look at one of the hardesttohelp groups, the ESA exIB group, for whom we are planning a maximum fee of £14,000, if a provider formed a partnership with a local employer that genuinely gave people two years and three months of employment, and they gave three quarters of their fee for doing that as a subsidy to that employer to take that person on, I am completely relaxed about that sort of approach because clearly it gets that person into work over an extended period of time and helps change their lives. We should not rule out the use of the fee in part to subsidise it, as long as it is a real job. The reason it has to be a real job and the reason it will be a real job, of course, is because, if you just shove somebody in the wrong job for them, they will drop out. The whole point about this is you cannot earn the maximum money unless they stay in work for that extended period. Putting them into the wrong job just gets you nowhere, because they will not stay.

Q173 Teresa Pearce: Just to go back to something you touched on earlier, one of the issues that has been raised with us is the voluntary sector is concerned that they may be used as what they call window dressing in bids. You seemed to imply earlier that, if a bid came to you from a prime with a group of third sectors that was going to be worked with, and then none of them were, that would be a breach of contract. Is that correct?

Chris Grayling: It is and, if it was a blatant example like that, we would just remove the prime contractor from their contract. I am not having that.

Q174 Teresa Pearce: That is a concern; that they have been used as bid candy, as they call it.

Chris Grayling: We are absolutely clear: if that happens, the prime contractor will be toast, frankly. I am just not having that.

Q175 Teresa Pearce: The last point I wanted to raise is that the timescale is very ambitious. You are looking at the Work Programme to be rolled out nationally from June, when it is only April when the bids are finalised. Are you confident that you will be able to hit the ground running on that?

Chris Grayling: You have looked at certain bids, so you can talk a bit more about this than me.

Alan Cave: Yes, we asked each bidder to be quite precise in specifying when they would be able to start, for each of the bids that were sent in. All of those, taking those together, are completely consistent with being able to start on time.

Q176 Teresa Pearce: So you are confident?

Alan Cave: Yes.

Teresa Pearce: Good.

Q177 Chair : The job subsidy thing, does that not come up against State Aid rules, which was one of the problems with the Future Jobs Fund? Do you get around that by saying this is somebody who is disadvantaged in the workplace, and therefore it is alright to give them a job subsidy?

Chris Grayling: The truth is it will depend on the model they bring forward, and it will be for them to sort out the legality of it. In some circumstances, there certainly could be State Aid rules applying but, equally, because we are dealing with people with disabilities, there are different rules that apply. Certainly we are able to provide extra support to employers who take on people with disabilities, so it will be very much down to them and their legal advice to decide and to find an appropriate model, but we certainly would not stand in their way if they found something that worked.

Q178 Mr Heald: Starting with contract variation, clearly there are provisions for contracts to be varied where economic change, changes in volumes and policy changes apply. Is this something that would be a consensual variation or would it simply be a question of the DWP saying, "Right, we are changing the contract"? In what circumstances do you envisage this happening? One of the risks we have been told about by prime contractors, and this was mentioned again in New York, is that they need an enormous amount of capital to be invested in this. Say there was a major economic change and, heaven forbid, we had a worse economic situation come upon us, are those the sorts of circumstances where you might change the contract and look at providing different payment levels?

Chris Grayling: If there was a very substantial change in the labour market, one way or the other, frankly, that is the kind of circumstance in which we might need to revisit some of the assumptions. Clearly we are working to the OBR recommendations and forecasts for the next four years. Those have been available to providers to make their assessments. If there was some massive economic hiccup, inevitably that is the kind of circumstance in which one might reopen discussion, but it is not something we would do lightly.

Alan Cave: I think I would draw a distinction between almost the letter of the contract and the spirit of its operation. It is right for protection of public money that the terms and conditions, which we have set out in the contract documentation, retain our right to control any future variation of terms. As the Minister says, the circumstances in which that would happen would be very limited. That is the way you have to write contractual terms but, in practice, you want there to be from the very beginning very open dialogue between ourselves and providers about what is working, what is not working so well, what we can do to improve performance and what aspects of that fall into our power, because of the way we operate the referrals process or something like that. Indeed, at the moment we are exploring ways in which we can institutionalise that a bit, so that we have that dialogue going on. I would hope that the fact that we necessarily have the controls very much on the taxpayer’s behalf vested with the Department’s contracts does not mean that we are simply going to avoid contact and dialogue with providers.

Q179 Mr Heald: As you may know, one of the problems in Wisconsin with the Wisconsin work scheme, which was a waybackwhen model of this sort of scheme but slightly different, was excessive profits-that they just got the contract wrong, in effect, and some companies made a fortune. Say you discovered that actually this was just going really well for the primes-excessive profits-do you have any power in those circumstances to trim that back using the variations?

Chris Grayling: We should not get into that position, because essentially the contractors can only make money by getting people into work and them staying there. As they do that, there is a corresponding saving to the taxpayer in terms of benefit. The hardcore of deadweight would not vary by contractor performance. In an extreme situation, it would have been possible to make money by doing very little-to take on a very small number of people in a room, get them all into work and do jolly nicely, thank you very much. By setting a minimum performance standard, which is 33% for the conventional adult jobseeker, the provider has to achieve above that level, which is higher than the performance of previous programmes, before they are even not in breach of contract.

We have been through this inside and out, and we think the only way you can make very substantial profits is to do really well at getting people into work and keeping them there. Clearly if that happens, it is generating more and more savings. The Work Programme is uncapped in that the more successful it is, the more AME savings can be drawn down to pay for it. There should not be a situation where we get caught in that trap. It is difficult to see how you could do that, because of the payment-by-results regime. I do not think anyone has used payment-by-results anywhere in the world quite the way we are doing it for the Work Programme.

Q180 Mr Heald: In terms of the outcomes, say you were to see that there were strong outcomes for some groups but poor for others, is that a situation in which you might seek to vary the contract to change the performance and payment levels?

Chris Grayling: We can move market share in that situation. We have the ability to give fewer of a group to one organisation and more to another, so we would manage market share between different providers if one was performing much better than another.

Q181 Mr Heald: As far as the minimum performance levels you mentioned are concerned, of course they are at higher levels than previously achieved, even when the economy was booming, which is a rigorous challenge that you are setting. When it comes to the minimum outcome rates, you are only really setting them in three categories out of the eight. What are your mechanisms for dealing with the other groups out of the eight? You are tackling the JSA 1824s, the JSA 25+ and the ESA in the WRAG group, but how are you going to manage the rest?

Chris Grayling: One of the reasons we did not go for minimum performance standards with the others is because it is very much unknown territory. A significant proportion of the rest are people moving off Incapacity Benefit, where the deadweight levels that have been achieved up to now are almost nonexistent. There has been virtually no flow of people into work, so there was no sensible comparator to use to say that is the amount you have got to achieve. Almost getting anybody into work is a benefit.

It is also the place in which you can make the highest returns, if you are successful. I think there is a great incentive to perform, particularly in the £14,000 group, which is the one where I really want to see the providers do well; the benefit to society of taking this group of people, who are either temporarily or permanently disabled but with limited capability for work, and helping them back into employment is such for society that extremely high levels of performance are very attractive. Saying to the provider, "If you do not achieve more than what has been up until now a tiny proportion of deadweight, you are in breach of contract," just seemed to me an unnecessary step.

The risk to us was not in the performance level in those groups; the risk was in the performance level of conventional jobseekers. Let us suppose you are in a situation where the labour market is improving; things are going fine; you concentrate on 25%; you park the rest; you make a jolly good return on 25%. It was about those groups in particular we wanted to say, "It is simply not acceptable to perform at lower than past programmes and at anywhere near to being lower than deadweight," and that is why we have set the minimum standards.

Q182 Mr Heald: How would you tell whether they were performing well with those groups that are not subject to minimum outcome rates? If you are looking at, I agree, very hard cases to judge, isn’t it something where you will have to develop the performance standard and try to find some way of benchmarking it? If all the primes just say, "It is hopeless; we are getting very tiny rates of success, and yes, we are doing well on those three other groups," that could be a sign of creaming and parking. It may not be an entirely genuine reflection.

Chris Grayling: The reason we have gone for the differential payment structure is to make this group attractive. One of the problems we have always had in the past, I think-if you look back at past programmes-is everybody has always sat in that financial box that was somewhere around £1,000 to £1,500 per placement, and a £3,000 outcome payment, and there was loads of creaming and parking, because they concentrated on easy people, and nobody has ever really broken out of that box. By going much higher than £6,000 for some of the hardertohelp groups and £14,000 for the hardesttohelp groups, for the first time there is a real financial incentive to chase after those people properly. We think that will significantly reduce creaming and parking, because suddenly that becomes an attractive part of the audience to work with.

Q183 Mr Heald: What you hope is that competition achieves the result where one of the prime contractors does well, and that benchmarks it. You then have a choice: you can either move the flow to them, or you can say to the other contractor, "Pull your socks up or we will do that."

Chris Grayling: Having been through these business plans exhaustively over months, I can tell you, if I were running a provider, the way I would try to make lots of money is to concentrate on the £14,000 group, the hardest to help, and really work to get them into work. Of course, if that happens, it is a great benefit to us, because these are people who would never otherwise have been in work. What we have tried to do is create a situation where our interests and the interests of providers are really aligned. They can make shedloads of money by doing the things we would absolutely love them to do.

Q184 Mr Heald: Are you going to be showing us at some point what the level of detail will be for the key performance indicators for each client group?

Chris Grayling: Yes, it is all intended to be transparent.

Alan Cave: Yes, absolutely.

Q185 Mr Heald: What is the idea behind this bonus for reaching 30% over the nonintervention level?

Alan Cave: This is really the first time that we have let contracts for anything like as long as this, and it seems that a market success for that contractual decision would be that providers get better as you go through. We have five years; some of these groups, as you say, we have not worked with before. It seemed right to make sure that, as you go through the contract period, essentially that efficiency gain is shared between the taxpayer and the market. The way in which we have done that is to say that the set maximum for outcome payments goes down from the middle of the contract period onwards, so you have to work harder, frankly, to keep the same payment going up. If you really do succeed through that, it seemed to us to be right to say that there is a bit of ceiling available, so those who go way beyond the previous levels of performance can earn a significant amount more, as if we had not reduced that payment.

Chris Grayling: There is another factor that we took into account as well. If you think of the way that, for example, the rail franchises work, the typical franchisee will make most of their money backended in the contract. They will make their upfront investment in their premium paid to Government; they will recoup that, say, over five or six years of a sevenyear period, and then they make their money in the last year or two. The pattern of a sevenyear, fiveyearplustwo, contract, the Work Programme, is not dissimilar, because they are making an investment up front; they are recouping money as time goes by; they are reaching profitability and then they are reaching cumulative breakeven; then they are generating cash surpluses.

One of the things we took into account was the need in what is a relatively difficult investment climate still to ensure that the cumulative breakeven point was not too late to attract investors. We formed the view that in our modelling we should aim to get the providers to breakeven point by the start of year four but, if we did that, by pulling the breakeven point earlier than it might otherwise have been, they could cruise at the same level of performance all the way through the contract, and make a higher level of cash return across the contract than would otherwise have been the case had we had the breakeven point at the point where it might normally have been. Hence, in order to make sure that did not happen, we had to tail off the price so that, if they achieve static performance across all seven years, the returns drop across the second half of the contract if they do not make that extra slice of money. Obviously what we want them to do, as time goes by, is to accelerate performance and we want to reward that. Stability gets lower and lower returns, but we recognise accelerating performance, because that is good for us and it achieves the objective of the Work Programme.

Mr Heald: It is interesting the international observers we met on our visit felt that you were learning a lot of lessons from their mistakes. Let’s hope they are right.

Q186 Karen Bradley: You have talked about breach of contract and the possible need to remove a provider. Could you tell the Committee what plans you would have for the event of having to remove a provider and finding a replacement?

Alan Cave: This is why the creation of the Framework is so important. If I think back to previous episodes, we have always felt in a difficult position because, in those eventualities of a chronic underperforming provider, firstly, we have not in the past had the competing primes situation and, secondly, because we did not have the Framework, we would have had to have gone through up to an 18month procurement process in order to find a replacement.

Here we have in effect three lines of defence. Firstly, if we had to get rid of a provider in a particular area, immediately we have another provider to refer business to, so there is no break in customer service anywhere from removing a provider. Secondly, we can see whether one of the existing providers in an adjacent area could give us a bid immediately, which would be satisfactory in order to replace that one. If that is not satisfactory, we can go to the Framework and, because they are prequalified, we do not have to go through a lengthy procurement process. We can, in a matter of a few weeks, ask for competing bids for the whole Framework, if need be-evaluate those and replace that one. It really does transform the position, and puts us in a much stronger position with a lot more contingency than ever before.

Q187 Andrew Bingham: The payments made to primes, what proportion, particularly upfront attachments, do you envision being passed down to the second and third tier?

Chris Grayling: That is very much going to be a matter for the first and the second tiers to negotiate between them. We have been very clear. As you will imagine, I have been approached by a lot of voluntary-sector organisations in the last few months, and what I have said to them is: "Look, we have done two things for you. The first is we have said to the primes, ‘If you are not at the table, then you cannot win,’ and the second we have said is, ‘The Merlin Standard provides you protection against them treating you commercially in a way that is unsustainable and unfair.’" If you take that situation and ask what then happens, I do not think we could possibly have been in a position where we sought to dictate terms to other parties as to what agreement they reached.

What I was seeking to do is to put the little guys into a position that, when they went in and talked to the big guys, they could say, "You need us, so this time we are going to talk terms that work for both of us," rather than, as has sometimes been the case in the past, that we have had the big guys squeezing the little guys out of sight. What we have done is our best to strengthen their hand. At the end of the day, we cannot shape the nature of the contracts that are agreed between them. Of course, a voluntary-sector organisation that does not get some cash up front cannot survive. One of the reasons they need capital behind them is not simply to bankroll the prime contractor teams; it is also to bankroll the network. I would fully expect to see sensible payment terms, an element of the capital available for the network being used to support the subcontractors and that being the vehicle to keep the subcontractor chain intact and working well.

Q188 Andrew Bingham: So you have made a robust assessment of the potential risk to the small second and third tier providers on the outcomebased model?

Chris Grayling: Yes, because if they all disappear, then the prime contractor is up the gum tree. If the providers are all coming to us saying, "We are now being squeezed so much we cannot survive," that would put them straight in breach of the Merlin Standard.

Q189 Andrew Bingham: We have had witnesses who suggested that the Merlin Standard does not have sufficient teeth to protect the supply chain. Have you any thoughts or comments on that? Maybe you need to strengthen it.

Chris Grayling: As a bottom line, the Merlin Standard enables us to terminate the contract with the prime contractor. I am not quite sure how many more teeth than that you can have.

Alan Cave: I completely agree with that. We would also add that one of the positives of the Merlin Standard is not just the teeth side or the stick side; there are carrots as well. It puts a lot of transparency into the system. There is a special portal in which people can advertise themselves and make connections in which the results of all the accreditations of the primes will be public. Again, the evidence that is amassed about the extent to which the primes do keep to the terms they have agreed with subcontractors will be there, and all that stuff will be taken into account in future procurement rounds as well. This is just a massive advance on anywhere we have been beforehand, and it has been recognised in a lot of other Government departments that this is the way they want to go as well, because they see it as something that has potential to set standards across Government.

Q190 Andrew Bingham: You are fairly confident then that the primes will be as much beholden to the second and third tier as the other way around?

Alan Cave: That is indeed it, yes.

Q191 Chair : ERSA has expressed some concerns that it may be difficult to have access to working capital in order to fund the payment by results. Another reason why it might be difficult for some of the contractors to get access to capital is because capital is invested in the Flexible New Deal and it has gone-a change of Government and away it went-and therefore there might be a bit of lack of confidence that the Work Programme will be around for some time. Therefore, it might make it more difficult to get that access. Certainly all the big contractors will have to have quite a lot of capital up front.

Chris Grayling: I think I would make two points. First of all, one of the flaws in the way the Flexible New Deal was finally put together is we ended up actually investing quite a lot of money into the provider community for not the most healthy return. The whole point about the way we have approached the Work Programme contracting is that the availability of capital to support this has been literally an absolute sine qua non. Nobody would have got anywhere if they could not demonstrate that they had the capital base to deliver this, and we have ended up with 180 bids. The proof of the pudding is in the eating.

Q192 Chair : Is it not the case that their whole future is gone if they are not-this is the only game in town for them? They have to be there if they are serious about delivering any kind of employability. They have to be in the Work Programme.

Chris Grayling: I would accept that if it was just the usual suspects doing it, but actually one of the interesting challenges we have with the bidding process is a lot of very attractive new participants, who have come in really looking to get into this business for the first time, with some serious capital behind them. That is enormously encouraging.

The thing I would say to the Committee in terms of this inquiry is there has been a lot of chatter around. For example, the Association of Learning Providers was quoted a few weeks ago as saying it is all awfully difficult and people won’t bid, but we have had 180 bids. We had five organisations that dropped out saying it was too tough, but an awful lot who did not and are there at the table. While I emphasise I have not had anything to do with them, my colleagues here assure me they are pleased by the quality of bids we have received.

The proof of the pudding is always in the eating and, so far, we have set clear quality thresholds; we have set clear capital availability thresholds; we have set thresholds around the availability of good voluntary-sector networks to make bids credible. Up until now, and we have the bids on the table, organisations both new and old in this sector have come forward wanting to be part of it.

Q193 Karen Bradley: One of the concerns that has been raised with us is that the client groups go into the Work Programme, and the payment structure is based on the benefits they are currently receiving, and the degree of variation within those benefit types. I just wonder if you could tell the Committee about what evidence you have to support the payment structure being based on current benefits.

Chris Grayling: I think the answer to that, very simply, was we needed to find something that was simple to administer that was likely to be reasonably reflective. This is not an exact science; it is never going to be. You could either set up a complicated triage system that had every individual sitting down for an interview and somebody forming a judgment over which box they should sit in, or you could come up with a very simple mechanism. We formed a view that, if we looked at the groups we particularly wanted to help, you have the conventional jobseekers, relatively straightforward-the under-25s, the over-25s. We looked at the deadweight element of those; we looked at the benefit cost of those; and we came up with simple brackets for each of those.

We then looked at the rest. We wanted to move some JSA recipients from the hardesttohelp groups-those who are exoffenders, those coming from the most difficult backgrounds-into the Work Programme sooner, but we also recognised the fact that they, of necessity, would be a greater challenge. Again, we looked for a payment that was reflective of the amount of money that we felt, based on the work we did with KPMG, would be necessary to provide proper incentives within that group. Then we looked at the hardesttohelp group, the ESA exIB group, and formed the view that this would be by far the most difficult. Again, we mapped out what were likely success rates, the likely amounts of money that would need to be invested in those, and came up with a number. In all cases, we looked at the comparator between the amount of money we were paying out and the amount of benefits that would be saved for the period of time we were asking them to be kept in work.

It is not an exact science. In some cases, we are paying out a bit less in benefit terms; in other cases, it is a bit more, but there is a reasonable parallel across the whole spread. It was out of a desire to create something that was simple, easy to understand, where there was no scope for debate and discussion. You are absolutely right; there will be variations within each group. That is inevitable but, we think, as a broad average it gives the providers a sensible basis to work with.

Q194 Karen Bradley: What happens if an individual’s circumstances change while they are in the Work Programme?

Chris Grayling: What kind of thing are you thinking of?

Karen Bradley: Perhaps they become disabled in some way and, therefore, are claiming a different benefit during the period they have entered the Work Programme. What happens to the payment structure in that case?

Chris Grayling: Circumstances would probably mean, if somebody moved on to ESA, that they would not remain within the Work Programme, because their health condition would not necessarily permit it.

Alan Cave: I think that is right.

Q195 Karen Bradley: They would come out of the Work Programme at that stage, and then they would go back in later on, if they needed to. One of the issues with the regional structure is that there are going to be different employment needs and issues across the region. How does the payment model address that?

Chris Grayling: We have not really sought to. If we had sought to create a differential payment structure region by region, it would have created a system that was so complicated it would have been very difficult to manage. We formed the view that it was best to apply a single model and not to try to vary it regionally.

Alan Cave: Although it is open for bidders to give their interpretation by the way in which they bid on the price side of the competition. If a bidder really felt that a particular contract package area was likely to be easier to find work for, they would come in at a lower price. I think that is the one corrective in the system.

Q196 Karen Bradley: How will you stop prime providers from focussing on the regional area where it is easiest to place people into work? I think of the West Midlands, which is my own area. I am at the very top of the West Midlands; I am a long way from Birmingham. If my prime providers are based in Birmingham, is there any incentive for them to focus on this area that is two hours’ drive away?

Chris Grayling: Yes, I think so. What we have seen emerge in previous contracts, and I think is quite likely to be what happens with the Work Programme, is that you will see a major organisation sitting in the middle of Birmingham providing support services to jobseekers within Birmingham. It is more likely the delivery for your area, for Harriett’s area, would be through one of the smaller organisations with a specialism in a particular geographic community. For example, if you look at Burnley, where we have been doing the IB/ESA migration first phase, there is an organisation called Vedas that works in Burnley and is already active, which I know you met when you went there. I do not know for certain- again, I emphasise I have not seen it-whether Vedas will end up in a successful Northwest bid, but it would not surprise me, given the fact that they are the guys on the ground in Burnley, if they were used by the Northwest contractors to deliver welfare to work support in Burnley.

That is really what we are after. In the supply chains of organisations we are looking to assemble, what I want to see is a mix of the specialist organisations-those who specialise in the blind, those people with mental health problems or whatever-combined with those people who offer a geographic spread. I visited the Wise Group in Scotland a few months ago, before the bidding process started, to talk about the work they do. They do a number of programmes, but they have partner organisations in the smaller towns in southern Scotland to make sure there is a full geographic spread. That is what I think will happen with the Work Programme and certainly we are looking for that happening. We are not going to be giving contracts to people who just do Birmingham and ignore the rest of the West Midlands.

Q197 Karen Bradley: How would you deal with a situation where there is perhaps only one subcontractor in a smaller town, but there are two or three prime providers, all of whom are feeding clients into that subcontractor?

Alan Cave: That is an unlikely pattern actually. Looking at the bids, between them they contain hundreds of subcontractor organisations. I read this as saying that bidders have heard us loud and clear, and they are coming to us with really well-developed supply chain arrangements. Therefore, they will be able to say they have complete coverage. One of the bits of evaluation that we have done also is to get a number of views from the front line, from the ground upwards, sharing with them, on an anonymised basis, key aspects of each bid, the qualitative parts of it-the description of the service, if you like-because we did not want to evaluate those in a darkened room; we wanted a sense check on those. That is very much fed into the evaluation. Putting those things together, I am confident that we will have quite robust and diverse approaches.

Chris Grayling: The irony is my worry is the opposite. It is something we should all expect to hear from the time we announce the winning consortia in April. The truth is there are a lot of organisations involved in this area, a lot of very good organisations, and there is not a place for all of them. I wish there was, but there is not. There will be winners and there will be losers. We will find across the country a number of organisations coming forward and saying, "It is not fair; we are not in the Work Programme." It will not be because we have not done the right thing to try to get the right mix of organisations. It is just that there are a lot of them out there, and there is not space for all of them.

Q198 Chair : Is it not the case that the differential payments are not quite as generous as might appear? You say getting someone from the hardesttoreach group into a job gets three times as much as the straightforward JSA claimant, but your own minimum performance levels are suggesting that you are actually only expecting the contractors to get one of 10 from that group into a job, whereas it will be four out of 10 with regards to the JSA claimants. In fact, it is still better or easier for the contractor to go down the route of getting the easiertoplace into jobs, and that will still give them more of a return than the one out of 10, even though they are getting three times as much.

Chris Grayling: That does not have to be the case. If you look at Pathways, for example, it has by all assessments added no value to deadweight. The NAO verdict was that it did not increase employment outcomes at all. For Pathways, we were paying providers a couple of thousand pounds in total per placement. Here, the sky is the limit. You are right: if you take a very conservative pessimistic view, then you may not generate a particular return out of that group. The point is you have potential to do that. If you set about, as a provider, really doing the right thing for that group, you can do very well because the price is much higher.

Q199 Chair : That is assuming that it costs the same amount of money to get that individual a job as it would to get a JSA claimant a job. Now, all the indication is that it is going to cost a great deal more, simply because they will need a lot more intervention and it will take a lot longer. By the time you have actually got the person a job, you have already spent a great deal more but, actually, the attachment of the fee that was on each head, because of the on-flows, is less for the hardertoreach group than it is per head for the easiertoreach group. Even in the difficult group, you are bound to have creaming and parking; they are bound to do a really rigorous triage of the 10 they have in to spot the one or possibly the two-they will make big money if they get two in rather than one-that will get them lots of money. They will put all their money on to those two and ignore the other eight.

Chris Grayling: I suppose the point is, if you look at young NEETs, for example, under New Deal for Young People we were paying a fee of £1,300 to £1,400 per placement. The typical job outcome was £3,500. Inevitably in a structure like that you will have creaming and parking because, if the maximum amount you are likely to earn is about £3,500, then you are going to concentrate on the people you are most likely to get into work. If the hardertohelp person costs twice as much as the easiertohelp person, then you will concentrate on the easiertohelp person. At least by paying £6,000 for that NEET, it suddenly becomes worth investing that bit more money in that person, if you believe with that bit of extra help you can get them into work. The point about this is we are breaking out of the box that programmes have always sat in of paying £1,000, £2,000 or £3,000 for the job outcome. They are suddenly saying, "Yes, actually we recognise the fact that, if you are really going to put a lot of effort into trying to get this hardtohelp group into work, it is going to cost you twice as much as the other group. Therefore, there is a commensurate reward." I think that is a big step forward.

I cannot give you a guarantee that every single person will be treated in the same way, because the Work Programme is specifically designed so that the organisations adapt what they do to meet the needs of each individual. By requiring them to put into the bids their own minimum service standards, so that every individual who enters the programme knows the minimum amount they can expect from the provider, I think we have both guaranteed that minimum level of support, whatever it may be, and we have put in place the opportunity to earn a substantial amount of extra money by getting the hardesttohelp into work. I think that will take us a lot further down the road towards ensuring fair access of all to proper support than we have ever had before.

Q200 Chair : I think you have just made the best defence of the Future Jobs Fund that I have ever heard, because that is exactly what it was made to do, but the Government has got rid of that. Maybe it will come back in some other form.

Chris Grayling: The point about the Future Jobs Fund is we paid £6,000 per head up front for it, whereas with this, we will pay when somebody is in work and has been sustained in work.

Chair : Good.

Q201 Alex Cunningham: Minister, there is real anxiety out there amongst people on Incapacity Benefit, who are going to be finding their way into the Work Programme. Is there really sufficient capacity and expertise within the Programme to respond appropriately to their needs, the very high numbers of former IB claimants, for whom provision will have to be made?

Chris Grayling: I think so, yes. The industry has geared up for this. We have been quite conservative in the numbers we have put into the tendering document, because one of the past criticisms of the Department has been it had overestimated numbers. This time we have tried to be quite conservative so that the providers can plan accordingly, but the providers are keen to take people on and are keen to get volumes. I have a real sense that this is an industry that is keen to get as many people as possible to work with. I am not worried about a lack of support.

It is also important to say that we are not simply going to thrust everyone into the backtowork channel. I am really concerned that the way in which the migration is seen is as an attempt to identify those who can benefit from the support provided through the Work Programme, to deliver that support for them at the right time, but not to try to force into work those who are not ready or cannot make the step into work. I think we will see a mix of outcomes. We have already seen that from Burnley and Aberdeen, and the mix between the fitforwork group, the WRAG and the support group. We are certainly not looking to push all of the WRAG into the Work Programme in one go; we are looking to move those who are nearing the point at which their prognosis says they may be able to return to work. We are providing voluntary access to everyone in the WRAG, so that those who feel they want to get enhanced support can access it. For those who do not yet feel ready and for whom the prognosis is not yet right, there will be flexible support provided through Jobcentre Plus to keep them in the work loop. We are trying to get the right mix for them, but I am very confident that the Work Programme providers can deal with the volumes we have set out.

Q202 Alex Cunningham: So their anxieties are not well founded at all?

Chris Grayling: My message to anybody who is going through the IB/ESA migration is that, if you are found fit for work or if you are in a position where you can soon make a return to work, you will be able to access specialist support. That support will be there for you: it will be there close to where you live, and it will be designed to help you take a step back into work. There is nothing to fear; we are not about trying to force people into work who are not able to be helped back into the workplace.

Q203 Kate Green: I just wanted to ask particularly about the group that is quite likely to end up in the support group, and that is people with learning disabilities. It is certainly the impression of a number of the organisations that work with those people that that is a likely destination for many of them. Obviously they could choose to access the Work Programme, but there is concern that the funding that supports them, for example to get education and training, will not be available to them. I wonder if you could comment on that.

Chris Grayling: We will be providing collectively through bids training for anyone who is on outofwork benefits and is looking to get back into work. There will be training available. I think most particularly it is going to depend very much on the needs of the individual, on the circumstances, on what they need, on the scale of what is provided. For somebody who is entering the Work Programme, I certainly expect one of things they will be doing is receiving shortterm guidance, support, training and coaching. With that group, as much as anything else it is about finding an employer who will give them the opportunity to get into the workplace, develop them and support them.

I was very impressed when I went-Dame Anne was there-to the meeting we had when I visited Aberdeen, and the young man we met who had been in work for a few months now and was clearly doing quite well. I thought he was an inspiration, but I thought the employer was a model of somebody who had given the opportunity to a young person with challenges in life to get into the workplace for the first time. Therefore, it is less about the training; it is much more about whether we have providers with the expertise to match an individual to a willing employer to find the right kind of role, and to give them the opportunity therefore to get into work. That to me is the big win, the big challenge.

Q204 Kate Green: I must say, in my own constituency we have a substantial number, some several hundred, of learningdisabled people who are currently going through courses at the local further education college, and a reasonable number of them do move into at least some form of employment. I know the college is worried that it will be simply unable to continue to provide courses for those young people in the future, because the funding that they are currently accessing is not going to be available if they are on a support programme.

Chris Grayling: I am happy to talk to you but, as you know, FE college funding is not in my remit.

Kate Green: I understand. I have actually written to the Minister around that.

Chris Grayling: You want to collar John Hayes and ask him about that.

Q205 Kate Green: The recent issue that has been raised with me is many of them have ultimately moved into admittedly often supported employment or veryshorthours employment, but there is a real concern that this group of people is potentially going to lose out because of what is happening in the FE sector, which I appreciate is not your concern. Your offer to them that they could enter the Work Programme may be something that they are not really in a position to do, because they are not getting that preparation.

Chris Grayling: We work very closely with John Hayes and the team at BIS, and we have been looking to create a matching offer that provides people who are looking to get back into work with the opportunity to access training modules that will help them develop themselves and make themselves better prepared to get into the workplace. I will certainly take that away and perhaps we could have a chat offline about that, because that is not what we would want to happen and it is clearly of great importance that we do help those people move into the workplace.

Q206 Chair : There is also concern because a lot of that group would end up on Work Choice, but it is capped at £23,000, and there just won’t be the places for them. That is another concern for that particular group.

Chris Grayling: We will do as much as we can to provide people with opportunities. Obviously, as you know, we are financially constrained because of the circumstances we are dealing with at the moment. Across the piece, notwithstanding the financial challenge, we are still making some major investments in training and development. We are making major investments in supporting people back into the workplace. In thinking about the mix of employment programmes, we were very careful to protect programmes like Work Choice that are aimed at people with disabilities, people in the support group, because I felt it was important that we did have the kind of specialist support that they need.

I should also say that that group will benefit particularly from the arrival of the universal credit, because one of the best ways of helping people in that position to the workplace is to get them somewhere where they can do a small number of hours each week and take steady steps upwards. They have a journey back into the workplace rather than simply getting a job. Of course, the universal credit enables them to do that very simply and very flexibly, without some of the disincentive points you get at the moment, around for example the 16hours rule.

Q207 Alex Cunningham: Some clients of the WRAG group will be assessed as not likely to be fit for work, maybe for three months, maybe for six months. It is not clear how frequently they will actually be reassessed. It also appears that they will only receive ESA WRAG payments for a year, despite not being mandated to attend the Work Programme. I would be interested to know what happens to the ESA WRAG group when they are found not to be fit for work within three months or six months, and how frequently will they be reassessed? Who will actually be responsible for that reassessment?

Chris Grayling: I will start with how we dealt with the WRAG group in relation to the Work Programme. We thought quite long and hard about this, and we talked to people on the front line in some of the provider groups. We came to the view that, for mandatory referral from the WRAG to the Work Programme, we should limit that to people who were approaching the prognosis point. As you know, when they go through the WCA, one of the things that is highlighted is the amount of time that the assessor expects them to take before they will be ready to make a return to work. We formed a view that, for those with a prognosis of six months or less, they should go to the Work Programme three months before their due prognosis date. At that point, the advice and guidance we had from providers was that they can start to work. Although we cannot mandate job search at that point, they can start to work with them, get them together in groups, start to prepare them for a return to work in due course. I thought that was the right point. That was very much the guidance of professionals.

Much before that, if you start to get a prognosis that is more than six months, the advice that we had was that you will have people who are actively resistant. They will say, "I am nowhere near to returning to work. The prognosis is more than six months. Why are you doing this?" Also, frankly from the point of view of the providers, you are putting them in a difficult commercial position because you are asking them to work with people who are not expected to be able to make a return to the workplace soon; there is no conditionality attached. They are investing money in something from which they may not get much of a return. We felt that, if we went for the threemonth prognosis, and then we offered voluntary access to everybody else in the WRAG-so anybody who has access to it and, indeed, anybody in the support group who wishes to have access to the Work Programme-we would back that up by providing ongoing tailored support through Jobcentre Plus, but we would not dictate a set model from the centre. We would leave it to Jobcentre Plus advisers to decide whether they use the conventional form of WFIs, workfocussed interviews, that they have done in the past, or whether they do something different with those people.

Q208 Alex Cunningham: Is it quite possible then that the real risk of the whole lot of this is what is considered as the Work Capability Assessment not being fit for purpose? Lots of people are saying it is not fit for purpose. Is that where the real risk is-that people will come into the Work Programme who should not actually be there?

Chris Grayling: One of the reasons that I asked Professor Malcolm Harrington to carry out his investigation into the whole process last summer was that, when we arrived in office and I looked at the initial bits of feedback that were coming into us from, for example, the Citizens Advice Bureau that said there is a problem here, it was clearly something that I felt we needed to take a careful look at. We had, from that point, about a year before the first of the IB/ESA migrants would be taking their assessments. I wanted to use that year to good effect to really look at the nature of the process-what was right, what was wrong and what needed to be done to make sure we dealt with some of the issues. Malcolm Harrington, as you know, carried out his investigation last autumn and he made a series of recommendations to us in November. We then looked at those recommendations very carefully and, based on the work that we did at that time, we formed a view that we could have and we will have all of the Harrington recommendations in place in time for the assessment phase to begin in or around June. As you know, there is about an eight to 10week period between the letter going out and the assessments taking place.

Q209 Alex Cunningham: Is that new information, Minister, because I thought there was going to be some sort of delay on the Harrington stuff coming out?

Chris Grayling: No, it will all be there. Of the key recommendations, some have started already. We took on board very quickly and very early on the advice over telephone calls rather than just letters, so people will get a human explanation. Professor Harrington’s first recommendation was to make the process more human. We have already started that; we did a lot of that in Burnley and Aberdeen. People now get a phone call at the start of the process and after their assessment is carried out. He made recommendations about mental health champions; they will be in place for April. He made recommendations about other aspects of the process-the personalised statement-that will be in place by the end of May. We are now confident we can have all of his recommendations in place by the end of May. He also made a number of suggestions for phase two of his work, the second annual review, which as you know we have brought forward and we are moving ahead with as rapidly as we can.

If I could just touch, if I might, since the question has been raised-if I might just divert very momentarily, Dame Ann-on the issue of the Work Capability Assessment and the internal review that we inherited from the previous Government. I know that this is a matter of concern at the moment. I thought quite long and hard. As you will not be surprised to learn, I did not feel a particular compulsion to adopt anything that had been done by the previous administration, but I thought quite long and hard about it.

What the internal review does is this: it moves people who are between courses of chemotherapy into the support group. That seemed to me to be a good thing. It moves people who are in residential rehab into the support group, which also seemed to me a good thing. The Department also did a lot of modelling on the impact of the review on mental health cases-people with mental health problems. It basically put the revised descriptors to an expert panel with a sample of people, a sample of real cases, and found that it actually increased the number of mental health patients in the support group, which seemed to me to be a good thing as well. The fourth thing it does is it allows us to take into account how well people have adapted to their condition. We are in the situation at the moment where, to take an extreme example-I accept it as an extreme example-a Paralympic athlete with a university degree would have no obligation to look for a job. I think it is quite important to factor in the degree of adaptation.

The one thing I have been very clear about all along is I do not believe we should say about any condition that basically you have to fit everyone with a particular condition into one particular box, and so the adaptation provision seemed to me to be sensible. That is why all of those things made sense to me and that is why we decided to go ahead with implementing the internal review. There was no other purpose beyond that. All of those recommendations made sense to me.

Chair : I am assuming that must be a division, but it does not appear to be coming up. Oh, it is. We will stand suspended for 15 minutes and then we will come back, if that is alright, or 10 minutes if people are back.

Sitting suspended for a Division in the House.

On resuming-

Chair : I think we will just get started, if that is alright. I was going to say-you obviously do not know this, because we will be drawing up terms of reference on Wednesday-in light of our visit to Burnley, we thought that we would do a short inquiry into the IB/ESA migration. Of course the WCA will feature large in that, so we will have you back to do all the detail, because it is certainly one thing. I think Harriett maybe wants to ask a very short question on that.

Q210 Harriett Baldwin: Yes, it is more topical, based on the visit to Burnley, as to whether you would consider "rebranding" the Work Capability Assessment into something more like the "work support assessment" based on the feedback from the previous period and also the fact that significant changes are taking place.

Chris Grayling: I think it is a very good idea. I think I am very open to that. The moment we should do that is probably-and we are talking in a few months’ time anyway-if we do the next project, which is the work that is now being done on whether we can improve the mental health descriptors. That is the next phase of Professor Harrington’s work, but it is something I have already had suggested to me. I think it is a good idea, and we are looking at what the right moment to do it might be. There is an interesting case for doing that.

Q211 Alex Cunningham: Will clients receiving the contributory ESA lose these payments after a year-you mentioned it earlier on-even if they have been assessed as not ready to join the Work Programme?

Chris Grayling: The answer to that is yes, but they will be eligible. Everyone who falls into the contributory bracket for ESA will be able to access the Work Programme, even though they may not be drawing a benefit. One of the things I was concerned about was we identified that this was a group that could fall through the cracks: those who had been on IB for a long period of time and, because of the nature of their household income, might not receive Work Programme support. We have made specific provision in the Work Programme budgeting for that group to be able to volunteer to participate in the Work Programme anyway, so they will not fall through the cracks.

Q212 Chair : In terms of the proportions of the WRAG group, there are two bits of the WRAG group-the ones who are ready to undertake work now and the bigger group, those who are not ready, as it were. I am saying there is a bigger group; I do not know. That is my question: what are the proportions of those two? My concern, which fits in with what Alex said about the contributory, is that people could have lost their contributory element before they are well enough to get anywhere near the Work Programme. A lot of that group will have fallen out of work fairly recently, and possibly because of that they may not even have got a diagnosis a year down the line. People do have those various longterm health conditions that will take more than a year to get back. What proportion will be on the WRAG? You must have the figures from Aberdeen and Burnley by now. What proportion are ready to go into the Work Programme? What proportion are three months down the line, and what proportion can you see won’t be ready after a year?

Chris Grayling: The truth is I do not know yet, because we were, at the last consultation with the team doing it, just finishing off the last few assessments. They have not been back to look at the threemonth prognosis numbers. I hope to have those shortly, and by the time you do your short inquiry we will certainly have those.

Q213 Chair : I am not clear then who does the next assessment. Is it the Jobcentre Plus personal adviser, or does the person have to go through another WCA three months down the line?

Chris Grayling: It is very much down to their choice. They have the right to go back to another WCA. They cannot be required to look for a job until they have been found fit for work by a WCA. My hope is that those who go back and take part in work preparation activity, which they can be required to do, will enter the Work Programme, find the experience positive and actually will take the step straight back into work. They do have the right to turn around and say, "I am not well enough. I insist on going to a WCA," and to be found not fit for work, and if their condition has worsened they would move back out of the Work Programme. The whole point about putting them in at the threemonth point is to start to get people ready for a return to work, give them a sense that there is decent support there for them, and to help them to begin to take the step that we hope they will subsequently take.

Q214 Chair : You could find some individuals coming for a WCA every three months because the personal adviser thinks they are perfectly fit to work, but they are saying, "No, I am not and my doctor is saying I am not," so they are signed off. Would it not be better to keep the WFHRA, rather than having to have the WCA every three months?

Chris Grayling: Ultimately the point about the WCA is that is the tool; WCA processes bring in mandatory job search. What we are not doing is imposing mandatory job search-I do not think we should do-on people in the WRAG. What we are able to do is to require them to take steps to prepare for work and, effectively, the threemonth prognosis point for entry into the work group is that it is about stepping up the preparation for a return to work, but it does not carry with it job search conditionality until they have been found fit for work by the WCA. We thought around this quite hard: what is the fairest way of doing it that actually builds up to the point where they are actually going through job search? This seemed to be the most sensible way of doing it.

Q215 Kate Green: The BBC recently reported that the Work Programme is estimated to support a quarter of a million fewer clients each year than the previous Government’s employment programmes, and I think, when that was raised with you in the Chamber, you said that we should not believe everything that we hear on the telly. I wonder if you could tell me what your estimates are for client flows through the Work Programme and how they compare with the number of clients supported by the previous Government’s employment programmes.

Chris Grayling: The BBC comparison really was comparing apples and pears. There are a number of ways of looking at this. Let’s start with the basic contractingout process-simply contracting out support to external providers. The figures for previous programmes in 200910 were about 550,000. The projection for the start of the Work Programme is about 610,000. That is in itself a conservative estimate. We actually reduced our estimates by 15% so that we did not make the mistake we have made before of overpromising volumes to the Work Programme providers.

I think that is a slightly artificial comparison. I think you need to look at it this way. We are providing two types of support to people; we are providing intensive support to jobseekers who pass the threshold and to people who come from the WRAG either at that threemonth prognosis point or who are volunteers. They are getting a programme that is up two years long with proper intensive backtowork support. In addition to that, we are providing a lower level of support to those who are in the WRAG but have not fallen in to either of those two categories. That is going to be done by Jobcentre Plus; it will be tailored more to the needs of the individual than it has been in the past.

That model is to some extent-although I have to say in detailed terms it is different-bears comparison with what was done in the previous Government, where you had around 400,000 people receiving support through substantial contractedout employment programmes like the New Deals, and around another 400,000 who received lowlevel support through Pathways to Work, which is basically six interviews. If you look at the comparison with what we are doing, we will be providing intensive support to about 600,000 people and then the lowerlevel support to about 400,000. By either comparator, actually the numbers are higher.

It is a numbers game. The simplest, most straightforward way of explaining it is that, if you are on JSA and you come to the thresholds of three months, nine months or 12 months, or if you are on ESA, every single one of those people has access to the Work Programme. There are no limits, no restriction. Nobody is denied access to the Work Programme. Every single one of those people can access it. If the numbers go up or the numbers go down, everyone gets access to the Work Programme and everyone gets access to that intensive support. I think that is the key point.

Q216 Kate Green: Given that there will be potentially substantially more people coming through the new Work Programme, what are the implications for the Programme if job opportunities in the labour market do not meet the Government’s projections?

Chris Grayling: The key thing to remember is that, even in the depths of recession, there are hundreds of thousands of people each year moving into work. The statistic I always remember-I have not done it for the last recession-is that in 1993, which was the peak year in unemployment terms of our last recession, something like 700,000 people who had been out of work for more than three months got into employment. The key is to make sure that, as and when opportunities arise, the people who are moving into those opportunities are those who are on benefits. The big failing of the employment programmes we have had in this country over the past 10 to 15 years is that has not happened. We have consistently seen this total number of the best part of 5 million people on outofwork benefits.

In the last few months, in those periods when employment has been rising, there has been very little change in the JSA count, so I think we are not doing a good job at getting people off benefits and into work. Far too many jobs have gone to people who have come into the UK from overseas or who have moved from economic inactivity to activity. Far too few have gone to people moving off benefits. I see the crucial challenge facing the Work Programme is to make sure that we are actually moving some of these people into the flow that is always happening, in all economic circumstances, of people who are getting into work.

Clearly, if there is a material change to the labour markets, a sudden big surge in unemployment, it makes life more difficult. If there is a big surge in employment, it makes life easier. Above all, what we must not do is get into the paradigm that says, because the labour market is tougher, these people cannot get into work, because a constant flow of people get into work and we have to make sure, this time, these people are part of that flow.

Q217 Kate Green: For the payment mechanism, in which over the 18 months that people are required to be in employment, if somebody had a series of stopgo jobs, would there be intermittent payment patterns for the provider over that 18month period?

Chris Grayling: Yes, they can earn for the periods in employment.

Mark Fisher: It is cumulative; it builds. If you do go through intermittent patterns of employment, it accumulates to the full 26 weeks, 39 weeks, 52 weeks or whatever it is. Your payment will be interrupted if you come out of employment at the wrong period.

Q218 Kate Green: That could facilitate quite a lot of churn for an individual, and the provider would still be picking up some reward.

Alan Cave: We think it is better than the previous process in which you paid a provider for a job that did not last, and then you have the revolvingdoor syndrome. This time, it creates more of an incentive for the provider to keep working with the customer in those circumstances to keep them in a job and, if they do fall out, to get them back into work quickly.

Chris Grayling: If I could just pick up on that point, the Work Programme is a twoyear process. An individual is on the Work Programme for two years and so, over that two years, there is quite a long period of time for that to happen and they would simply revert to the provider during that period if the job did not work out. It is also worth saying, for your numbers comparison that, because it is a twoyear programme, if you are looking at the number of people who are on the Work Programme at any one time, it will be two years added together less the number who are in work. If you look at the first two years of the Work Programme, we are projecting about 600,000 to go into the Work Programme each year. Obviously we will have some that get into work, but you will find that within 18 months to two years you will have 1,000,000 people in the Work Programme at any one time, less than 200,000 or 300,000 who have got into work on top of that taken into account, which does make it a lot bigger than it has been before.

Q219 Kate Green: On the point you are making about one of the roles for providers being sustaining people in work over a much longer period of time, it was suggested to us from one witness that that actually required a different set of skills from personal advisers than simply getting people into a job. What reassurance can you give us that providers’ staff will be sufficiently well trained to deal with that sort of variation in role and also the complex and wide range of needs that they will meet on the Work Programme?

Alan Cave: I think there are two parts in answer to that, Kate. One is it is not just skills but processes as well. What we are seeing in some of the bids that we started to look through are some quite interesting bits of innovation about how providers keep in touch with people who have gone into work and how they organise those relationships. The signs are good that providers are thinking about that. The second part of the answer is that is the way the incentive structure is set up. If a provider wants to really earn the maximum amount of money that is available for that programme, they will find ways of doing that.

Chris Grayling: Can I just take very quickly the point that Dame Anne made about the WFHRA? One of the things that we felt about the WFHRA was effectively the first interview that the Work Programme provider would go through with somebody who was referred to the Work Programme effectively replicates the objectives of the WFHRA anyway, so we felt there was a degree of duplication there, which was one of the reasons why we decided not to go ahead with it.

Q220 Chair : But some of them will get into the Work Programme. That is the problem. There is no WFHRA to help judge whether they are fit for work.

Chris Grayling: All those who are found fit to work would go through this process and would enter the Work Programme quickly. The JSA people have three months of Jobcentre Plus and will go through the same kind of triage process with them, sitting down with them and working through what they can do.

Q221 Alex Cunningham: Minister, there will be regional variations in the availability of work. If we look at the North East, for example, there has been a shift from public- to private-sector jobs in recent times, but there is still this huge dependency on the public sector, where we are expecting to see considerable job losses in a region like the North East. How is the Programme going to work for them? Are you expecting a variable performance across regions depending on the opportunities available to people?

Chris Grayling: Let me pick that very specific example. Over the course of the last summer quarter, when we saw quite substantial rises in employment around the country, there was a 17,000 rise in private sector employment in the North East but the JSA rate barely changed. That to my mind is the nub of problem. I do not believe it is impossible for the private sector in any part of the country to create jobs; the challenge is how we make sure that people who are on benefits actually are the ones who take advantage of those jobs, and that is the bit that has not really been working.

You are right; we are very clear that there are parts of the country that face bigger challenges than others. The North East is one of them. It has a high dependency on public-sector jobs. The private sector is smaller than many other parts of the country relatively. That is why we have the Regional Growth Fund. It is why we have put in place tax incentives for small businesses in those areas. It is why we are targeting the New Enterprise Allowance in those areas. I would be very surprised, although I am not privy to all the details of the budget, if the budget did not contain more measures that are designed to stimulate the growth of business in those areas. I am very clear in believing that only if we have new successful organisations, companies working in those parts of the country, making profits, investing, creating jobs, will we really deal with the unemployment problems there.

Q222 Alex Cunningham: You do not think organisations in areas like the North East of England will have a different level of incentive for getting people into work? That won’t be necessary?

Chris Grayling: I think that the incentive structure we have is sufficient to enable them to do what it takes to get people into work. What we have to do alongside that is to create an environment where business is thriving and jobs are being created to get those people into.

Q223 Mr Heald: If I could just ask one question arising out of that, of course if a provider feels this is a more difficult challenge and "I might need to spend more money in order to get people into work," they can put in a bid at a higher level, in terms of what they are expecting to be paid in that area.

Chris Grayling: Yes, exactly.

Q224 Kate Green: The last thing I wanted to ask about was the process for sanctioning clients, where that becomes necessary, and particularly how Jobcentre Plus and Work Programme providers will work to ensure that is a seamless experience for the client, and that the client is clear about what is going on.

Chris Grayling: We thought about whether to move sanctioning to providers and decided against it. We have left the job of sanctioning a claimant with Jobcentre Plus, and we have also left the fortnightly interview with signing on with Jobcentre Plus. Both of those are important because, at the end of the twoyear period if that person is not in work, Jobcentre Plus will have to take responsibility again for them for a period. I would expect what would happen, and certainly what we envisage would happen, is that the provider would notify Jobcentre Plus of nonparticipation; Jobcentre Plus would then seek an explanation and implement a sanction if it is appropriate. The sanctions regime we have put in place basically discontinues benefit payments until the person reengages.

Mark Fisher: We have not changed the sanction regime on behalf of the Work Programme, if you like. The sanction regime is the one that is going to be implemented in the Bill in other measures. It will require, as you imply, close relationships between providers and Jobcentre Plus, but that is essential for the whole system to work. Clearly Jobcentre Plus is absolutely a key part of our delivery system, and a key part of the project we are putting in place to deliver the whole Work Programme.

Q225 Kate Green: I guess it is important because there is a lot of evidence that sanctions are often misunderstood. People do not why they have received them and do not even know that they have received them. In terms of the purpose of sanctioning, which is reengagement, as you have said, Minister, it seems to me that there will need to be very clear communications between Jobcentre Plus and the provider about the circumstances that are leading to a referral back to Jobcentre Plus. I think that is something we will be interested to see in practice.

Chris Grayling: I would be very happy to return to that as we get the systems bedded down.

Q226 Chair : I have one last question. I think this will be the last question unless my colleagues tell me otherwise. At the moment, with the way the benefit system works, we know that over 16 hours is a fulltime job, but that will go with the universal credit. Under either the present definition or a new definition, what will count as a job outcome? Will it be 16 hours or 32 hours that would count before the providers get their full pay?

Mark Fisher: We are still working through how universal credit will affect the systems, including the Work Programme, because clearly it will change the nature of the different segments of customers going into the Programme. The 16hour rule may or may not have to be changed. We are working through these issues at the moment.

Chris Grayling: In order for the model to be sustainable, let’s be clear: it is perfectly acceptable for a parttime job to be a job outcome, but what a parttime job cannot be, in its entirety, is kind of one or two hours a week. It has to be a genuine parttime job that lifts somebody out of basic JSA provision in order to be an acceptable Work Programme outcome. That does not stop the provider giving somebody shortterm work experience in short bursts, and that will become easier when the universal credit is in place. Certainly we do not envisage a four or fivehourweek job being a satisfactory job outcome in the Work Programme.

Q227 Chair : So we might see a 16 or 20hour rule still there in the universal credit?

Chris Grayling: There will have to be a threshold, yes.

Chair : Thank you very much, Minister, for coming along this afternoon. You had a wee bit of a break in the middle of it. Obviously from now on we will write our report, which we hope to publish some time after Easter. Thank you, and thank your colleagues for coming along this afternoon.