Work and Pensions Committee - Minutes of Evidencehc 162

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Oral Evidence

Taken before the Work and Pensions Committee

on Wednesday 19 December 2012

Members present:

Dame Anne Begg (Chair)

Debbie Abrahams

Graham Evans

Sheila Gilmore

Glenda Jackson

Stephen Lloyd

Nigel Mills

Anne Marie Morris


Examination of Witnesses

Witnesses: Ian Mulheirn, Director, Social Market Foundation, Professor Roy Sainsbury, Research Director and Professor of Social Policy, University of York, and Tony Wilson, Policy Director, Centre for Economic and Social Inclusion (Inclusion), gave evidence.

Q1 Chair: Welcome to the first oral evidence session of our inquiry into claimants’ experience of the Work Programme. I welcome the three of you here this morning. I am particularly glad to see Ian Mulheirn, because I understand that we might not have seen you, as a baby was expected this week, but she has already arrived. On behalf of the Committee, I congratulate you on the birth of your daughter.

Ian Mulheirn: Thank you. I may be a bit bleary-eyed this morning.

Q2 Chair: We are delighted that you could come along. I will start with a general question. The Department for Work and Pensions says that it is too early to judge the overall performance of the Work Programme, or to answer detailed questions about its operation. Do you agree with that? Who will start?

Tony Wilson: I am happy to start. My name is Tony Wilson, and I am the policy director at the Centre for Economic and Social Inclusion. It is certainly too early to make clear final judgments about whether the Work Programme has been successful or not, and it is arguably too early to make robust comparisons between the performance of the Work Programme and what would have happened anyway.

One criticism that was levelled when the first data were published was that the programme was worse than doing nothing on the basis that it had underperformed against minimum performance levels set by the Department two years ago. In our view, it is too early to make such judgments because the economy has been different, and calculation of performance levels was not transparently set by the Department, so it is hard to form a judgment on whether they were right, but it is certainly early enough to form judgments about what is happening inside the programme, the sort of support people are receiving, what seems to be working or not from the perspective of what participants are finding most effective, and what Jobcentre Plus (JCP) advisers and Work Programme providers are saying. That formed the basis of the first evaluation report of which Roy Sainsbury was an author. There is enormously useful information there, so we can certainly form judgments on what is happening within the programme. We can also make early judgments about performance in terms of making comparisons with the equivalent stages in previous programmes, and we can make some adjustments for the economy.

In our analysis, which we published on the day of the stats, it looks as though the Work Programme is performing more or less in line with predecessor programmes-the Flexible New Deal (FND) and New Deal programmes-at the same point in time. It does not look as though it is doing massively worse, or any better; it is more or less in line with where you would expect such a programme to be.

Q3 Chair: Could you introduce yourself for the record? I forgot to ask you to do that at the beginning.

Ian Mulheirn: I am Ian Mulheirn, director of the Social Market Foundation (SMF). I agree with Tony that it is too early to judge many things, but one thing it is not too early to judge is the DWP’s benchmarks, against which it said the programme should be assessed. It set out clear numbers for the first year, and the performance figures fell well short. So I do not think we can say that much about whether providers are doing well or badly in absolute terms. What we can say is that the benchmarks were way off, and that raises questions about how it was commissioned, and whether other numbers involved are right. It is not necessarily appropriate to judge the absolute performance of providers against those figures at the moment.

The SMF analysis did not take account of the differing economic conditions, but we compared performance with what we had seen under FND and we think the programme is doing slightly worse-in fact quite a bit worse-than FND was at this point. But how much of that is down to the state of the economy is unknown.

Professor Roy Sainsbury: I am Roy Sainsbury. I am research director in the social policy research unit at the university of York. I lead the welfare and employment research group there. We in York are partners in the research consortium that Tony mentioned, which is led by the Institute for Employment Studies in Brighton. We are carrying out the official evaluation of the Work Programme for DWP, which is a three-year project. Tony mentioned the first report, which came out on 27 November. That will be the first of many as the Work Programme rolls out. The evaluation will carry on until 2015. I think that some of the findings of that first report are probably in your briefing notes.

Is it too early? Yes, it probably is too early. Tony and Ian have already mentioned some reasons, but there are all sorts of other reasons why it is too early. Things never settle down in new programmes for some time. We have been involved over the years in evaluating New Deals and Pathways to Work, and it is an almost universal truth that you have to give programmes some time to settle down. There will not be anything like a steady state for at least a year or 18 months, possibly even two years.

I think that it is too early in spades with the Work Programme because things in the design of the Work Programme are going to change. That will change the way providers work and the environment they have to work in. I will mention a couple here. There are the attachment fees, which Work Programme providers get in the first two years only of the programme. Every new referral got an attachment fee of £400 in the first year. That has gone down to £300 in the second year, which is where we are now, and it will go down to zero in year three and beyond. That is a major contextual change and will affect how Work Programme providers operate. They will have to make money from sustained job entries to make any money at all. There is no easy money.

The other thing that is different about the design of the Work Programme is the market share shift that will be introduced in two years. If you recall, the providers get an equal share of new referrals in a geographical area. At the moment, if there are two providers, they get a 50:50 share. That will be reviewed after two years by DWP, and that market share could shift on the basis of performance, so one provider could get 60%, and the other could get 40%.

Those are major changes. Those design features are there to enhance performance. Until we see those things operating, it is too early to form final judgments about whether the Work Programme is working.

Q4 Chair: I take your point about the time it takes before something gets up and running. There has been quite a lot of lost time. There is the fact that there has been a year of the scaling down of the Flexible New Deal, and it not being rolled out in the rest of the country, and a year of the scaling up of the Work Programme. We have two years, effectively, of lost opportunity to get people in work.

Professor Roy Sainsbury: Everyone has still been working to try to get people in work. I am not quite sure that it has been an entirely lost opportunity. As the figures that came out on 27 November show, there are people who are in sustained work. It is not very many compared with our aspirations and aims, but I am not quite sure that it is a totally lost opportunity. But it always happens when you are changing programmes like this. There are people coming in, but there is always a slow build-up of cases.

I think the Work Programme was put in place quite quickly-there was a National Audit Office (NAO) report about implementation. People are still setting up offices, getting staff in and getting their computer systems working. There are always teething problems, which means that they are not operating at their maximum efficiency, or in a steady state. You will always get this. In the meantime, clients keep coming through and they have to be dealt with in some way. We have seen the results: some have done well, but many more have not got much out of it yet.

Tony Wilson: It has been made more difficult with the Work Programme for a number of reasons. First, there was the very fast implementation of the programme compared with other programmes. The bid documents came out on Christmas Eve, or a couple of days before Christmas, two years ago. Decisions on assessment were being made in the spring. Many providers will tell you they did not actually have finalised contracts to sign until very late on-a few months before delivery was meant to start. There were then a lot of difficulties around TUPE-the Transfer of Undertakings (Protection of Employment) rules-which proved very difficult to deal with. They always do, but they were being dealt with in a much more compressed period with the Work Programme. We then saw a massive number of referrals happening in the autumn as a result of the closure of the flexible new deal and the transfer of large numbers of claimants into the Work Programme, creating a big bulge for providers. They were not getting the ESA1 volumes through that they had expected and planned on the basis of.

All these things were a consequence of, as Ian said, the rushed commissioning process, the rushed implementation process, but there were also some issues around how that was set up, which come out in the evaluation as well-for example, around Jobcentre Plus’s readiness for the programme. So these things were made more difficult. When you look at the Flexible New Deal, that was commissioned over a 22–month period. The Work Programme was commissioned over, effectively, less than 12 months. You create these problems by having rushed implementation of major programmes.

Q5 Debbie Abrahams: I particularly want to pick up on the point that Ian made about the benchmarks set by the DWP. I also have some questions about this. I think we have another section that specifically deals with performance. Why do you think the benchmarks set by the DWP were so out? Obviously, there have been difficulties in the labour market and so on, but surely within a model that was meant to be projecting, they would have had scenarios to deal with that.

Ian Mulheirn: It is baffling how they come up with these figures. Just for a bit of historical comparison, the benchmark figures for the Flexible New Deal that the DWP announced were even more absurd. They were looking at 50% to 55% outcomes, I think, although it was all measured slightly differently in those days. There are always these kinds of macho targets, which are really there to say, "Look, we’ve really got to be tough on these nasty private providers. We’re going to make sure that they hit really high standards." Of course, that comes back to bite the commissioners, because it is not possible to achieve those targets-certainly not in these early days, as Roy said. So this is partly about targets just being far too optimistic. I think the NAO report highlights the very large margin that was put on just through pure faith that the Work Programme was brilliantly designed and was going to yield great outcomes.

So there is a huge dose of wishful thinking in these things, but the other part is the economy, and when it comes to looking at these minimum levels, we need to be aware of this. Lots of evaluations going back over the past two or three decades show that these kinds of programmes do work in getting people into work, but they do not have a huge effect. The deadweight-the number of people who would get a job anyway-is a very high proportion of the number of people who get a job when on these programmes. A good programme might be adding 10% more jobs, so when you see performance levels of 2.3%, the majority of that 2.3% would have got into work anyway.

What does that tell you about the benchmark? It tells you that the economy is having a far greater effect on these outcome figures than poor performance by any one provider or other, so we cannot credit providers when they hit the ball out of the park in one year and get high outcome rates, but nor can we really castigate them for appalling performance in year one when it is likely to be mainly the economy that is driving that. I think the benchmarks that were set were largely derived from the labour market performance between 2001 and 2008, when of course the economy was doing much better. That would have driven those figures up.

Chair: We have detailed questions on all of that later, so we will move on now to some questions on referral and handover of claimants.

Q6 Nigel Mills: Professor Sainsbury, the analysis you did-I think it was called the first evaluation report-looked at problems of referral between Jobcentre Plus (JCP) and the Work Programme providers. Can you talk us through what those problems were and what impact they may have had on the experience of the participants?

Professor Roy Sainsbury: In the tender documents of the DWP, there was quite an emphasis on the referral and handover process that the providers were expected to respond to. They were expected to explain how they were going to do it so that they got new clients hitting the ground running, as it were. There is a logic behind that, because if you get someone coming to a new programme who understands it, has expectations of it, knows why they are there, who the provider is etc., you have got over many barriers and you come with a positive start. What the research shows so far is that that was happening occasionally-the jargon in the documents is a "warm handover"-but it was not happening very much. A lot of clients were just being sent along to the Work Programme provider with little information about what to expect, without knowing who they were and what was compulsory and what was not. That creates a problem for the provider staff on day one, because they get someone in front of them who, at best, is ignorant, because they do not know what is going to happen, and, at worst, is worried. Even worse, they are hostile, because they have been given no information, perhaps not full information or sometimes wrong information.

Part of the problem from the Jobcentre’s viewpoint-we interviewed staff as part of the research-is that they do not know what the providers are going to do. They said, "We haven’t had much contact with Work Programme providers. We have a bit of information on paper." Some have had meetings, but still they were saying, "We can’t sell the Work Programme, because we are not actually sure what it is and what our claimants are going to get, and we are not confident that they are going to get what they are promised. We don’t want to tell our claimants, ‘You are going to go along to Work Programme provider X and get fabulous support and they are going to find you a job’." They cannot say that and they do not want to say that. So that is one point. That is one area where it is not working as it is meant to.

The other bit that came up-this is data information from the Jobcentre staff themselves-is that some of them do not like the Work Programme. It is a threat to them. They see it as a threat to their jobs and their livelihoods. They do not trust it and they do not think that the Work Programme providers are going to do as good a job as they did. That is another reason why they do not sell it-"Why should I sit here in my Jobcentre office selling an organisation, pumping them up, when they are effectively the people that could do me out of a job in future?" So there are a lot of things working against this smooth, warm handover.

It is not all negative. There are examples of people who went along to the Work Programme provider on day one, ready and expecting-making demands almost-a positive response. There is a lot of emphasis on this working well. When it does not work well, it is not always a disaster, because the Work Programme provider can pick up. If there is a lack of information, or wrong information, they can correct that. If they do not know much about the claimant, they can ask questions. In fact, all Work Programme providers start with an assessment phase with their new clients and they gather all the information that they need. You can get off to a bad start, but you can pull it back. So far, we have little evidence that a good or bad handover is going to have much long-term effect.

Q7 Nigel Mills: Was this the same on previous programmes?

Professor Roy Sainsbury: I am not sure I know the answer to that, to be honest.

Tony Wilson: There were similar issues on the Flexible New Deal. I think this may have been covered in the previous inquiry as well. One of the issues was whether the Department had learnt from the experience of the Flexible New Deal, and we have been assured that it had. It does not appear that all that learning has really been captured. Part of it is around the speed at which the programme was commissioned and set up. There are often these problems.

One thing that is different is the very high conversion rate from referral to attachment. Some 95% or 96% of people who are referred subsequently attach to the programme. That is verified by comparison with previous programmes and what DWP was expecting. I think they were expecting as much as 10% to drop out. That may reflect that providers have got better at engaging people, getting them on to the programme and harvesting the attachment fees. Partly it may also reflect that it is not having the same effect on clients. Often, when claimants are referred, they sign off JSA2, and that does not appear to have been happening to the same extent.

Q8 Nigel Mills: The last question I have is on the low level of referrals from some of the potential participant groups. I know that providers have expressed concerns about that. Do you have a view on why that is happening or how that can be changed?

Tony Wilson: Yes. This a major issue with the programme. It is a significant issue. Two years ago, one of the great opportunities for the Work Programme was to combine the previous programmes for different groups into a single programme. That would allow for more personalisation and greater economies of scale and so on. The expectation was that roughly two thirds of participants would be on JSA and one third on Employment and Support Allowance or incapacity benefits (IB). In fact, it has turned out that 90% are on JSA and 10% are on ESA. When you have a programme that is that heavily geared towards jobseekers and not towards ESA claimants, you create a lot of the issues that Roy and the evaluation team found. Increasing the number of ESA referrals is an important base in terms of increasing the support for people furthest from work, but also ensuring that it is a viable programme within the Work Programme, if you like.

Why have referrals been lower? There are three principal reasons. The first is the delays in Work Capability Assessments (WCA) and so on, which are now largely being resolved. The second has been the high volume of appeals, with people who are found to be in the Work-Related Activity Group (WRAG) appealing and subsequently being placed in the Support Group and given longer prognoses. The third is that, in general, people who have been assessed as being in the Work-Related Activity Group have been sicker than expected. They have not had the short prognoses.

The DWP’s response, as you will know, has been to extend the prognosis. That appears to be having an effect, in that the referrals for new ESA claimants are now more or less in line with what was in the invitation to tender. The really significant gaps are now in all the other groups of ESA claimants, particularly volunteers, people who voluntarily refer themselves to the Work Programme. Those are the ones, for the incapacity benefit claimants, where the largest outcome payments sit. The reasons for that are going to be totally different. It comes down to things such as awareness of the programme, how far the disability employment advisers in Jobcentre Plus are prepared to refer people to that rather than to, for example, Work Choice, which is a specialist programme for disabled people, and how effectively providers are marketing their services.

My concern is that DWP’s response is to continue to try to get more and more of the new ESA claimants by extending prognoses, widening access and so on. Actually, it is that group of 2 million-plus people who are on incapacity benefit and ESA, the potential volunteers for the programme, who are the ones we should really be targeting. I think we need to be more innovative in how we do that.

Q9 Nigel Mills: You do not think there is some systemic weakness in Jobcentre Plus’s programme that means that people are not being flagged up to be referred as quickly as they ought to be?

Tony Wilson: All the points that Professor Sainsbury made around Jobcentre Plus’s lack of knowledge or detailed understanding of the Work Programme offer hold here. That is a large part of the issue: how effectively are Jobcentre Plus advisers who work with those groups on ESA and IB selling the potential benefits of the Work Programme?

Q10 Nigel Mills: But how much do they need to be selling benefits? That is probably important but, if they are flagged up as, "You should be referred now," I take it you are not saying that people in Jobcentre Plus who see that flag are ignoring it or somehow wiping it. Is there a case about flagging up here?

Tony Wilson: I think there is some suggestion of that-you do pick up anecdotally that that is happening. There are various reasons. This is concerning the new ESA claimant group. There are various reasons why somebody who meets the eligibility criteria may not be referred to the programme. There are various exemptions that can be applied. There is some evidence that that is happening, but I don’t think the problem is now. There is still an issue around the new ESA claimants but DWP is addressing that by changing the prognosis. The issue is the large volume of potential volunteers, which I don’t think at the moment the programme is going to address.

There is a good example of that from November of last year when Jobcentre Plus ran a series of information sessions for ESA and IB claimants to try to increase volumes. The evaluation found that that did not seem to make any difference to referrals. Part of that was because advisers were going through the process of doing the sessions but they were not at the end of it saying, "This is right for you." They were still thinking, "We can offer a better service", or "Work Choice would be better", or "The Work Programme might not be right for you, because I am not sure about this particular provider." It is random allocation as well; you don’t even know which provider you’ll get. You could have a great relationship with one and find your clients referred to somebody else. I don’t think those issues have been addressed.

Q11 Graham Evans: Picking up on something my colleague said, Professor Sainsbury talked about Jobcentre staff being unhappy because they may be losing their jobs. Isn’t that a complete lack of leadership from management at Jobcentre, that they can have staff feeling like that? By its nature, that impedes the whole objective of getting people into work. How do we end up in that sort of situation?

Professor Roy Sainsbury: Well, I do not think that I am in the right position to judge whether DWP leadership has failed, but the evidence on the ground is certainly that that is the feeling. It is hard to argue that their fears are not grounded given the evidence of how things have gone over many years, with the increasing use of private and voluntary sector providers in the work that used to be all Jobcentre Plus. They see a trend. Have they had messages that their jobs are safe? I don’t know. That would be a leadership issue, I suppose. When you talk to these staff and hear these fears, you think, "Yeah, I can see that-I can see where you’re coming from."

Q12 Graham Evans: It is not those that I am asking about; it is about the leadership and management, or the lack of leadership and management. I understand if the employees and workers-the front-line staff-are unhappy, but it is the leadership and management of these organisations that are key. In any organisation, if they fail to do that, they perhaps have to consider their positions.

Professor Roy Sainsbury: You may be right, but as part of this research project we did not interview those types of staff, higher up the organisations, about what they were doing. As Dame Anne Begg introduced, we were interested in the claimant experience, which takes in the front-line staff. I think you have a point and are right to raise the question, but I do not think I can answer it.

Chair: We will have the Minister in at some stage.

Q13 Glenda Jackson: On this line of questioning, it is hardly surprising that they think they may be in danger of losing their jobs, because so many of their colleagues already have-there has been reduction in Jobcentre Plus.

I want to go back to the decision-making process as to where people end up. The whole thrust of this programme, essentially, was to get people off incapacity benefit, and mainly to assist people who have not worked for a very long time. The first step in this is Atos, isn’t it? Their numbers go to Jobcentre Plus, who are the decision makers. It seems that the one thing none of you actually touched on in any detail was the individual claimant. It is very easy to say that Jobcentre Plus are being difficult, but so is the individual claimant.

The idea that they were all going to go on to ESA was set up by the DWP. My evidence is only anecdotal, but the number of people who have been put on to ESA and fiercely objected to it is very large-I am just looking at my own constituency. What, in effect, can Jobcentre Plus do about that? They are having to abide by the rules set out by DWP, and the providers are sitting out there, and according to the evidence that they have submitted they are very quick to hand the claim down to Jobcentre Plus and say, "It’s not us, guv, nobody tells us anything." But there is also the attitude of the individual claimant. Professor Sainsbury mentioned the changes that are coming down the pike; should this be part and parcel of the changes that DWP should be looking at? Essentially, I am saying-I think-that the targets they set were wildly, wildly extravagant for the people they were wanting to get into work.

Tony Wilson: I absolutely agree. With hindsight, I think that the targets were wrong for ESA groups. You are absolutely right that the mess that the assessment system has become, particularly for people previously on incapacity benefit being reassessed for ESA, has contributed massively to this problem. I also think that the fact that it has had such a detrimental impact on Work Programme providers has actually been a real driving force behind DWP trying to sort it out. Part of the reason the previous Minister for Employment took such a personal interest in resolving these issues was because of the impact it was having, in terms of trying to speed up the appeals process and make the assessment process run more smoothly.

We have seen some improvements in recent months, but those issues clearly have not been resolved. There is really a choice for DWP for the future. Should there be a single programme that effectively incorporates all new ESA claimants in the Work-Related Activity Group, for example, and potentially alongside that has less of an "employment above all else" focus and perhaps more of a focus around steps towards employment and managing conditions-it ends up looking something a bit like Pathways to Work within the Work Programme-or do you go with something where you are trying to selectively identify the much smaller group of people who have a realistic and fairly immediate prospect of moving back to work? That is an approach that was attempted with the Work Programme and it has been demonstrated that that is incredibly difficult to do, certainly from a standing start. It would be easier with the evidence and the hindsight we have got from this programme.

Q14 Glenda Jackson: So should there, in effect, be another category?

Tony Wilson: I am not sure whether it would need another category. I would be thinking of looking further forward at whether you actually have a single programme for all groups and, if you do, whether you have to open it out to people who are likely to be much further from work and therefore structure it very differently in terms of the expectations.

Q15 Glenda Jackson: But the DWP consistently told us that the hardest to reach were being catered for in this new programme, and then we were told that the primes were going to subcontract these people. As we know, that subcontracting has not happened, so I am just wondering whether there should be-

Tony Wilson: The most difficult were never going to be catered for in this programme systematically. It was only going to be those people with a prognosis of being ready for work within three to six months. The intention was that if people with longer prognoses wanted to volunteer for the programme, great. If not, they would be seen by an adviser from time to time, supported through Jobcentre Plus and reassessed periodically for their benefits. That group have always been outside the scope, yes. They are now being brought in, but they are being brought in order to address a volume problem without actually changing the mechanics of the programme, and that is the worry.

Professor Roy Sainsbury: One day in the distant future, these sorts of issues might go away because we will not have ESA any more, and we will not be talking about ESA and JSA groups because we will have Universal Credit.

Q16 Chair: Yes, but they will still have to be tagged.

Professor Roy Sainsbury: There will still have to be some assessment of how they are treated and what conditionality there is, but it is all translated. It will not be about claimant groups; it will all be in conditionality groups under Universal Credit. That will be the future, and where the existing WCA fits into all that, I do not know yet. I do not know whether anyone does. It is going to change, which is another reason why we should not be judging the Work Programme too early. That is another massive contextual change, which is meant to incentivise people to work, and to work more. These two things are parallel branches of welfare reform that are meant to be co-ordinated and work together. If we come back in five years’ time, we might be able to have a conversation about whether it has worked under the conditions of Universal Credit.

Q17 Chair: Everyone will be mandated by that time. Is that what you are saying?

Professor Roy Sainsbury: And we will all, probably, be claiming Universal Credit by then.

Q18 Sheila Gilmore: I have to say I think that is a slightly naive view of Universal Credit, because when you look at the diagrams that DWP self-produces about Universal Credit, it has nice little sections that are quite differently grouped. I suspect that a few months after it goes out, people will start talking about ESA-type Universal Credit people and JSA-type Universal Credit people. The conditions attached are very different, unless you are going radically to change those conditions.

It seems to me that one of the problems we are facing is that we are dealing with a programme that was generated originally out of an understanding that there are some groups who are hard to reach and need work done with them, which has been transposed into a situation of very high levels of unemployment where a lot of people are simply unemployed because they have lost their job and there is not another one. They do not need a lot of nurturing, necessarily; they need a job.

The WRAG, in particular, has become a new catch-all in some ways. A lot of people appear to have a longer prognosis to fitness and yet they are now going to be mandated into the Work Programme more quickly. You have got people who are always going to recover, and it is just recovery time that they need; there are people who need to be retrained because they cannot do the work that they did before; and there are people who are ending up in the WRAG who have long-term conditions-we have all probably had representations from organisations like Parkinson’s UK, who are dealing with people in that group-whose conditions are likely not only to remain but to deteriorate. Is that not an argument for more understanding that there are different groups, whether you subdivide them or not, as was suggested?

Tony Wilson: Yes, and those are exactly the sorts of exemptions where Jobcentre Plus adviser discretion starts to come in. My point is that we have essentially created a situation where we have broadened access to a much larger group, and now Jobcentre Plus advisers are applying exemptions and discretion for a much wider range of conditions and therefore selecting people out of the programme, which is their right, because the programme may not be suitable for people with progressive conditions of who have no prospect of work.

It is a question of what support should look like for those groups: is it right to simply say that no support is the answer, or should we have a programme that looks quite different? Can we simply shoehorn the current Work Programme to deliver that without making fundamental changes to what providers are expected to deliver, what they are paid, what we consider to be a successful outcome and everything that goes with that? That is very, very difficult to do 18 months into a five-year programme. To some extent we either have to start that discussion now for the next programme or look at how you commission specialist support for those groups.

Ian Mulheirn: There is a danger of confusing the idea of having separate programmes with whether or not there is sufficient funding for the different groups within this current programme. I think that DWP and the Government were absolutely right to go for one large programme and to try to strip out some of the huge costs of having the patchwork that we had before. The problem is that if you then do not fund people to reflect their different needs underneath that, you will end up with the problems that we have at the moment. I do not think the answer is to set up a whole new programme. There are huge economies of scale here for the organisations that are delivering these things; although people’s needs are very specific, there is a huge amount of overlap in the supply chains that are involved, so it would be silly to throw that particular baby out with the bathwater.

Chair: I think we will be coming back to that and other things. We will move on to minimum service standards, the black box and personalisation.

Q19 Stephen Lloyd: We have discussed the black box a lot over the last couple of years, but I have a couple of key questions. One is, how important is it in your judgment that providers have a free hand on how to deliver services using the black box principle? We have had it now for 18 months; how important do you think it is?

Professor Roy Sainsbury: In our work, we have come across two views of what the black box actually means, and it is quite useful to go over those. I am sure you have come across this before. One view is that the black box applies to when people have designed their bids and services that go into a contract, then the black box stops and that is what you are going to deliver. The other view is that the black box starts then: it allows providers to tailor and evolve their services and innovate, and they are not held to what was in their original bidding contract. So we are finding quite a bit of tension, particularly between JCP contract and performance managers and the providers who are actually out on the ground. Providers want the black box to mean, "We can do what we need to do and we do not want to be constrained by anything," whereas the other view is, "The black box has stopped. You have said you are going to do this and we are going to keep you to it."

How important it is, is a slightly different question. If you want services to evolve and respond, and organisations to learn, then a black box makes a lot of sense. But you lose control of that if you are DWP, because you do not know what you are actually going to get. But there is a fundamental contradiction almost between the payment by results system and trying to keep providers to minimum service standards, for example. If you really wanted to have the black box operating in its purest sense, you would let all the providers go, they would be paid by results and they would fall or succeed on the basis of their outcomes. But then you lose control of what goes on in the black box and you have no guarantee that your constituents, or your claimants, are going to get anything at all from this system, unless you provide some sort of minimum service. So you get this tension, and how you play it has not been worked out yet, I think. You have some people thinking, "Yes, you must see your claimants every two weeks. That is what is in the minimum service," and other people thinking, "But we don’t need to see our claimants every two weeks, because they are doing something else."

Q20 Stephen Lloyd: Is there any evidence that it is fostering innovation, compared with the effects with New Deal and Pathways? These are well tried and tested variables over the past few years, but is there any evidence that it is producing any innovation at the minute?

Professor Roy Sainsbury: I would say that it is very thin so far.

Tony Wilson: That is the key question: is this leading to substantive improvements or changes in the support and the effectiveness of what people are receiving? There appears to be some process innovation, with more efficient ways of contacting people, better use of social media and new technology and work on how to better use systems and processes to match people to vacancies, for example through automatic matching, which Jobcentre Plus is rolling out with its Universal Job Match and so forth. The reality is, however, that at the end of the day it comes out that a large part of what Work Programme providers are delivering is face-to-face adviser support, coaching, mentoring, help with job searches and CV building. That is the same kind of stuff that has always been delivered, but it does work. It is effective support, but we are not seeing substantial innovation in the personal services that individuals are receiving.

Ian Mulheirn: That is partly because of the level of funding that is on offer here. The original idea of these schemes was to have a reasonably well funded and tailored system and to move away from the very efficient, but one-size-fits-all Jobcentre Plus approach, which is a sausage machine, but is effective for the vast majority of claimants. If you then start to cut the funding, or the fact that there are no jobs effectively cuts the funding for you, you end up with a situation where you have to do very standardised things, right down to what is in your minimum performance offer. In those things there is not much, except for process innovation, that you can do. The fact that we are seeing some process innovation even in these early days seems like a good thing.

On your broader point about the black boxes, you have two ways you can structure your employment programmes. You can stipulate your processes from the centre-from Whitehall-and say that you want people to do x, y and z and that that will get people into jobs. Everybody would get the same treatment. In that case, you get lots of people being contacted five times a week, as Roy was suggesting, who might not need it, and other people who are perhaps not getting anything more than a phone call when they need something more. The alternative way to do it is to drive everything by prices from Whitehall, in which case you have to have your prices right. If you get them wrong, you will get creaming and parking.

We have taken steps over the last four years with FND and now with the Work Programme down the route of driving the whole system by prices, but we have not got the prices anywhere near right yet. How important is the black box? Well, if you want to carry on down the route of letting providers do whatever they can, you need to fine tune the prices and get them right. We are nowhere near that yet. The alternative is that we take a step back and say, "We have got our fingers burned, this is not working. We will go back to demanding things from Whitehall. Let’s have minimum performance standards and mandated tasks that every provider has to do." I personally think that that would be the wrong way to go, but if we are going to make this thing work, we have to have a much better understanding of what prices are needed to drive performance.

Q21 Stephen Lloyd: What in your opinion would be right way to go?

Ian Mulheirn: I think using prices to drive the market.

Q22 Stephen Lloyd: So, when you say prices, that means adjusting the variables even higher for people who are on IB and so on?

Ian Mulheirn: Yes. I think it mainly involves getting a better understanding of the costs to the public purse of the array of jobseekers who are out there and then working out how prices should be allocated on that basis. There is a huge amount of money that can be saved here, but only if we are offering the kinds of rewards for providers to make progress.

Q23 Stephen Lloyd: Okay. That is a point well made. Two of you have touched on minimum standards, but just to reiterate, some prime providers’ minimum service standards are non-specific and lack detail and others are more detailed, as Tony mentioned at the beginning. Are the minimum standards sufficient to ensure that all participants receive an adequate service in the way that they are framed at the minute, or is it pretty irrelevant?

Tony Wilson: I am not sure that minimum standards written on paper will ever be sufficient to ensure that people receive the service they want or think they are entitled to. You would see the same evidence. One of the issues is that, as you will know, over decades different governments in different parts of the world have gone between these spectrums of deregulation, regulation and re-regulation. The Wisconsin Works model started out as black box and five years later was quite heavily prescribed. In Australia, it started out as black box. By the second contract, it was being prescribed and by the third a bit more and so on. Most countries that have experimented with black box provision have introduced prescription as they go in response to concerns about equity and standards of service. Having a service guarantee-as they have in Australia-that says that you will have an action plan, you will be seen once a month and that you will have x, y and z is never enough on its own because a canny provider can always tick those boxes.

I think the key here is that, if we care-as we should-about creaming and parking from the perspective of both job outcomes and equity and the quality of service that people receive, you have to monitor quality. For example, in Australia, the survey of participants is a hugely powerful tool which informs the star rating of providers. Participant satisfaction with the services informs how providers are judged by the Department, but where is the survey of participants that informs how satisfied people are with the Work Programme?

Q24 Stephen Lloyd: That brings me on to the next important question. It is on monitoring in the sense that, in 2010, the DWP discontinued Ofsted inspection of welfare to work provision. Are you saying that is there a case for reinstating either that or some independent monitoring for Work Programme providers, or for establishing a completely independent inspection regime?

Tony Wilson: In my view, yes, but Ofsted was not working, and it was right to end Ofsted inspection. You can do one of two things, or both. One thing I think that we should definitely do is surveying participants. The other is independent inspection. Most countries do not; I mean, in Australia, there is not an independent quality inspectorate, for example. In Great Britain there has been in the past, and Northern Ireland retained it in its programmes.

I think that there is a role for independent inspection, and I personally would favour independent quality inspection. But it does increase costs; it increases compliance costs, and that has knock-on effects. It also risks bringing in people who do not really understand the programme and who do not have the depth of knowledge that DWP and Jobcentre Plus do.

Q25 Stephen Lloyd: But, in principle, you would support it.

Tony Wilson: Yes.

Q26 Stephen Lloyd: Ian and Roy, would you agree generally about having independent inspection for this? Do you think that it is of value, or a red herring, or something else?

Professor Roy Sainsbury: Tony made exactly the right point. With service standards you have quantity and you have quality, and it is very easy to measure quantity but it is sometimes fairly meaningless. We have one provider manager who said, "What is better: that I see someone every week for 10 minutes, or that I see them once every six weeks for an hour?" The quality would probably be in the hour every six weeks, but then you are not getting the quantity, so you need to disentangle quantity and quality and understand what you are looking for.

Certainly, at the moment there is nothing built into the Work Programme design that has any measure of quality in it. Whether that is addressed by an independent inspection-I will withdraw that slightly because the contract and performance managers within DWP are meant to be monitoring performance levels, but they are measuring different things. As we all know, the minimum service specifications from each of the prime providers vary wildly from a few lines that say they will see someone occasionally when they feel like it, to they will see them at 5 o’clock on Friday afternoon. The DWP people are monitoring very different things, so people are getting very different quality all over the place.

Looking at client satisfaction data is one way of doing it, and it is done routinely in many Government Departments, I think. The research that we are involved in, the evaluation programme, is in the field now-or it has just finished-doing our first participant survey. That will serve as a first proxy of that quality indicator from the perspective of the users, and we will be doing that again, later in the evaluation period, to see how things have changed. So that is one way of doing it.

Q27 Chair: When will that information be available-will it not be until 2015?

Professor Roy Sainsbury: No, the first survey of participants is going on now, it will be analysed in the new year and it will be published when the DWP decides to publish it-that is not in our control.

Tony Wilson: It will not be provider and contract package area level satisfaction data.

Professor Roy Sainsbury: No, it will not be able to supply that detail; saying whether Ingeus are doing well, or not well, or whatever. It will not be at that level.

Q28 Stephen Lloyd: But it will be participants?

Professor Roy Sainsbury: Absolutely, and it will give an indication of whether people think they are getting what-

Q29 Stephen Lloyd: And regional spread?

Professor Roy Sainsbury: Yes. It is a big survey. You will be able to have that some time next year.

Chair: I think that Ian is waiting to say something.

Ian Mulheirn: I was just going to chip in on that. With the inspection regime, Tony’s distinction between asking service users how things are going-actually, from looking at some of the evidence that service users or clients have submitted, you do think that somebody needs to see whether these problems are common, because they are quite worrying stories. That aside, the problem with the other kind of top-down inspection is that it is the same problem as with the mandated minimum standards from the centre. There is a real danger that you get a tick-box attitude, which would be hugely expensive, hugely costly to monitor and would lead to resources being diverted to the wrong area. Mandation and minimum standards and ticking boxes might make us all feel better from the centre, but it will not solve any of the problems. The primary thing is sorting the prices out. The second thing is finding out from service users how the thing is performing from their perspective.

Q30 Debbie Abrahams: On the participant survey, I understand that all the caveats mean that this will not necessarily relate to specific programmes, but will you have data on different participant groups? I am thinking about BME3 groups, disabled people and so on, but not necessarily the category of claimant.

Professor Roy Sainsbury: The sample is big enough to allow for some of that sub-group analysis.

Q31 Debbie Abrahams: I think that is really important. I hope that you will analyse it in that way.

Professor Roy Sainsbury: That is the intention.

Q32 Anne Marie Morris: I have a question for Roy, because he is the one who has been doing the research into the black box and what is in it. To what extent do the black box tools include the opportunity, advice and help for self-employment, or are all the black box tools geared towards other employment? As a supplementary question, to what extent is the content driven by the payment system?

Professor Roy Sainsbury: That is a really interesting question about self-employment, because self-employment has been promoted over many years as a good route out of unemployment and coming off benefits. The evidence is patchy so far, but we are beginning to see a sort of increasing push towards trying to help people into self-employment from Work Programme providers. There certainly are programmes and some specialist provision within the supply chains that is meant to address people’s needs when they want to enter self-employment. The tools are there in the black box. I will not say that they are everywhere and in every contract package area (CPA), that they are the same or that some are better than others. The evidence will emerge in due course, but self-employment is certainly being seen by Work Programme providers as a really useful way of getting people into work. This is something that we are going to be watching very carefully, because there are some dangers here.

Q33 Stephen Lloyd: It has good and bad. There are good opportunities and there are dangers.

Professor Roy Sainsbury: It is very easy to get someone to be self-employed. I could set you up immediately as self-employed by asking you what your hobbies are and saying, "Set yourself up as a teacher of golf, bridge or something." You could do that. You could register yourself as self-employed, and you could even claim tax credits immediately even though you are making no money. Can you see? It is a very easy route. You could stay there for a while-even six months or a year-before anyone really takes much interest in you from the tax credit perspective. I am beginning to feel that there is an easy route here for Work Programme providers to channel people into self-employment.

Q34 Stephen Lloyd: Which is why we just need to watch it. Forgive me for coming back to this-I agree with you, trust you, you have been around a long time, you are absolutely right, but I also know that there are opportunities to get it right, capture the spark of aspiration for someone, and they fly, so I agree that it needs watching very carefully, but it is also an opportunity. There are no two ways about it.

Professor Roy Sainsbury: It is a route out of unemployment that many people do not even consider for themselves unless someone suggests it to them, so it is something to keep an eye on.

Chair: That answers one of the questions that we had in the next section, which is on overall job outcomes.

Q35 Graham Evans: Something that Tony was talking about was interesting. You mentioned Australia and how you had the black box and then you came out of the black box. When I was in business, I used to have regions and performance, and I used to analyse my managers and their sales teams. There was always an outperforming team compared with another team. There was always a load of Billy Bullshit about the reasons why people could not perform as well others. There is always an excuse for why this team did well, but when you looked into it, there would be a recipe for success. There was the right way of doing things, the middle way and then the wrong way. When I analysed the best performing teams, they took the right way to do it and improved it. I know you are dealing with people and not selling products and services, but the best performing teams used to take the right way and made it even better and they would teach me a thing or two. The middle teams would say, "Oh all right", and the bad teams should not have been working for the company and ended up not doing that. I cannot help feeling that it varies from region to region and from Jobcentre to Jobcentre. The Departments mean well in what they are trying to achieve but they do not always get it right. If you follow the recipe for success to a certain degree-I am always open to places like Australia where it works-why shouldn’t it work here?

Why do we have those differentials? Isn’t it all about outcomes? If those teams do not serve those people-this is taxpayers’ money trying to help people get into jobs-and are not serving them right, why can’t we change them? Can’t we incentivise them in some way to do the right thing? This is the recipe for success. We know it works. It is proven in parts of the country. Look at the best performing team in the country and say, "What is it that they are doing?" Whether it is the north-east, the north-west or the south-west, what those managers and those leaders and the middle leaders are doing, can you get that, turn it into a recipe for success and then duplicate it around the country? Don’t just leave it at that: spot those who rise to the challenge and reward them for that. For those who do not rise to the challenge and who do not perform, you have to take very difficult decisions. That is my question. Can’t we take what works from elsewhere in the country and the world and just duplicate it across the country? That is what successful businesses do.

Tony Wilson: Yes, we can and we should. That has been a driving force in welfare to work programmes for the last decade or so. Successive UK governments have been very good at commissioning research and looking overseas for lessons on what works and how best to design programmes. Focusing right in on performance variation within GB though, there is a number of factors. One is obviously the economy. We cannot escape that. There are areas where performance is lower because economies are weaker. There are areas where it is higher because economies are stronger. That cannot explain all of it because in the Work Programme for the first time we can compare performance of contractors in the same area, who should have, because they are randomly allocated, exactly the same profile of claimants to see how they are performing against each other.

You see wide variation between providers in the same area. So there are other things beneath this. If you then, as we have done, look even closer at local authority level performance and try to work out whether the minimum performance level targets have been met to a local authority level, we think that, in 25 of the 40 contract areas, at least one local authority area was above the minimum performance level. Part of that is the economy. Part of it is that there is huge variation within contract areas, within supply chains, within provision.

Providers focus on this relentlessly and forensically. Why are some areas doing better than others? Put the worst performing areas in special measures essentially. Make them go and visit the highest performing areas and see what they are learning. Take managers from the highest performing areas and put them in the lowest performing areas and so on. It is easy to say, but if everybody were performing at the highest level, or even, if you just knocked out the bottom performing quarter, let’s say, performance would be significantly higher. Part of the secret here is simply to reduce those differentials. Why are there those differences? As you said, it is a people business, ultimately, welfare to work. It is about how effective and good your advisers are and how inspirational they are and how effective your managers and leaders are.

There has been a problem over successive programmes and it exists in Jobcentre Plus as well-I worked in Jobcentre Plus and the DWP-in respect of really successful, inspirational leadership and also highly professional front-line advisers. Many of the advisers are absolutely brilliant at what they do. But the lack of formal accreditation of those skills, of continuing professional development as recognised across the industry, and of common standards is a major issue. One important thing that has happened in the last year, and which the whole industry needs to get behind, is the Institute of Employability Professionals (IEP), which is being funded through the Growth and Innovation Fund from the UK Commission for Employment Skills. For the first time it is introducing those professional standards. I think that should be part of their Merlin assessment and everything else. Are you part of the IEP? Are you doing that continuing professional development for your advisers and how effectively are you giving that support and raising those standards?

Looking beyond that, there are clearly some areas where innovative techniques or practices are used, particularly in employer engagement, which we tend to find varies significantly, and also in how discretionary funding is used to help people meet the transitional costs of moving into work and various other things. Yes, there is a case for saying, "How do you bottle some of that?"

My final point is that I would not leave that all up to individual providers within their contract areas. Part of that is the job of DWP. They effectively own the Work Programme. They should be drawing out best practice, and they should be disseminating it because a provider will not. Why would they? It is their meat and drink; it is their business.

Glenda Jackson: What is success as far as the DWP is concerned? Is it getting people into work or getting people off benefit? They are not the same thing.

Q36 Graham Evans: I agree with that. Tony, Inclusion has recommended that DWP scraps its current Work Programme minimum performance level measure, and replaces it with something more responsive to economic conditions. How would this operate in practice?

Tony Wilson: There are a number of ways this could be done. We would not have started with the minimum performance level, as it is currently constructed. One of the problems is that it is not a cohort-based measure. In other words, we are not assessing the performance of individual groups of claimants. When Ian talked about the 50% Flexible New Deal, that is a relatively straightforward calculation. Of people who enter the programme in a particular month, 12 months later how many have a job? That is a transparent measure of performance. You can set targets on that, and you can manage performance against that for each successive month of the programme. How individual cohorts do is the measure DWP should have used rather than a minimum performance level, which takes your total outcomes divided by your total inputs up to that point. That makes it hugely more complicated.

Q37 Glenda Jackson: You just told us what DWP were doing and that this was going to be what the subcontractors were going to provide for the hardest to reach and the most difficult.

Tony Wilson: But the DWP performance measures are not measured on a cohort basis. We still think that should be adjusted for the economy. You can do that prospectively by setting different targets and potentially adjusting your payment on the basis of changing forecasts for the future. You can potentially do it retrospectively as well by recognising that one impact of lower-than-expected economic performance has been effectively that the Work Programme has seen a massive reduction in funding per participant because the outcomes have not been achieved. In some cases, it is likely to be 25% lower unit funding simply because outcomes are not being achieved. One thing that you could do retrospectively is to look at ways of making that money available in ways that do not reward providers for failure, but ways that, for example, create greater local control over additional funding, but essentially as a consequence of poor economy.

Q38 Chair: Are you saying that, in areas where there is high unemployment and low economic activity, the provider should get paid a higher rate for getting someone into a job than in an area such as Aberdeen where the economy is booming and unemployment is low?

Tony Wilson: As well as adjusting for the outturn of economic performance nationally compared with what we expected, I think that one of the major issues with the Work Programme is the failure to recognise that, within CPAs in different areas, you have higher and lower performance, and a failure to set performance targets and certainly price incentives to reflect that. There are five parts of the country where more than 5% of the population are on the Work Programme: Blaenau Gwent, Wolverhampton, Kingston upon Hull-I have forgotten the other two, but they are the areas where you would expect high concentrations of worklessness. It is not right that the payments are exactly the same there as they are in Worthing, my home town, which is at the top of the league table.

Ian Mulheirn: Tony is right. One of the problems is that the funding for the service is effectively being cut as the economy tanks, which is exactly the point at which you want to increase it. It is hardwired into the payment system. They get fewer outcome payments, so they have less to spend on the front line. There is no other service where we would accept that to be the case, especially not one when we want the funding to go the other way. This is a major problem.

I will suggest a slightly simpler version of what Tony is proposing. Effectively, he is saying: let us strip out the effect of the economic cycle and let us pay people well if they do well relative to other providers. In our evidence from the Social Market Foundation, you can see the distribution of provider performance. It is quite wide at the moment. Some are clearly doing some stuff well, and some are clearly not. That distribution will probably shrink over time, but the challenge is to incentivise the best and incentivise learning from the best, and not to cut funding in the middle of a recession. That is a fundamental problem with the payment by results mechanism that is based on absolute measures of performance. Instead, perhaps we should consider relative measures of performance.

Q39 Chair: Is it too early to do what Graham suggests, which is taking contracts away from the poor-performing providers? Should that happen now, and should we give them over to the ones who are better performing, or is it still too early? My original question was, is it still too early too tell?

Ian Mulheirn: You need a DWP statistician to answer that question. There is some variation in the numbers that you will see, because there haven’t been enough people going through the system yet. That variation is rapidly reducing and very soon-you need the statisticians to tell you when-you will be able to say with a high degree of confidence, "These people are not performing well". I don’t know whether that point is being reached, but it should be soon.

Tony Wilson: I expect that DWP will say that their market share shifts can start from two years in. I wouldn’t be surprised if they do start to try to use the market shift-shifting a proportion of referrals towards the more successful providers-as early as spring or summer next year. That brings with it a huge host of risks, where similar things have been done in the past in other countries. There will be a short-term performance hit from that, but you also risk, ultimately, getting much closer to monopoly provision, but hopefully you are re-contracting and introducing competition and innovation.

Ian Mulheirn: One of the other dangers with the share shifting is that you may be condemning the other 40% to the poor provider-

Tony Wilson: Absolutely.

Ian Mulheirn: It will then be getting fewer economies of scale, performance is really bad and things spiral out of the control. At that point, you probably want to see reallocations and things like that if you want to improve performance.

Chair: We will move on to job starts data. We have probably covered quite a bit on the labour market.

Q40 Anne Marie Morris: "Lies, damned lies, and statistics", they say. With regard to the job start data, I guess we are trying to drill down to how useful they are, and what they really tell us. While we have a figure of 207,000 job starts, does that mean that, for each of those starts it is a different individual, or are these multiple job starts?

Tony Wilson: These are the figures produced by the Employment Related Services Association (ERSA). They are individual job starts. There are 207,000.

Q41 Anne Marie Morris: You mean individual people?

Tony Wilson: Individual people who have entered employment.

Q42 Anne Marie Morris: Okay. That is good news.

Tony Wilson: It is, absolutely.

Q43 Anne Marie Morris: Do you think that that figure indicates that performance is building in the pipeline? Does that figure give you some comfort or confidence?

Tony Wilson: Our analysis suggests that yes, it does indicate that performance is building in the pipeline. It is useful that they have published it. We would hope that they will publish it as frequently as possible, in as much depth as possible-maybe even for individual providers and contract areas. It suggests that the next performance figures will see some improvement.

Ian Mulheirn: I slightly differ from Tony on that. ERSA have put out figures like this before, and they have said since January or February 2012 that their figures show that everything is going fine, but that hasn’t been the case when we saw the final figures. I am very sceptical that these are very useful. That is partly because people throw around different measures of measuring the performance of this thing.

The only measure that counts is the outcome measure, which is jobs for six months over 12 months of referrals. Even the Government put out 14 months-worth of data, which weren’t comparable to its own figures. We need to focus solely on what this programme is supposed to be assessed on, which is those performance figures. The job entry figures, we don’t know how many will sustain. We just don’t know whether the state of the economy means that there are more temporary jobs, or fewer. Even with the good analysis done on this, you don’t know that it is consistent over time, or that it is comparable over time. I would put no weight on these numbers at all.

Tony Wilson: Yes, but they have helpfully been broken down for us by month of entry to the programme and percentage entry in work at each subsequent stage. You do see after six months that in the early months of the programme, it is typically 15% to 18% who have made an entry to employment. In the later months of the programme, it is above 20%. We are seeing improvements.

Q44 Anne Marie Morris: In terms of this figure, "207,000-what?" would be my question. How much of that is self-employment? Is there any division by industry sector? What does it tell us in terms of where the job opportunities are, because you clearly need to match these individuals to where the opportunities are, rather than where they are not? Do you think that data is going to be forthcoming? Would it be useful? Is it something that we should be looking to encourage to be published?

Professor Roy Sainsbury: We certainly do not know it yet, but it is a really interesting question. Some of the survey data that we will be producing will show you where people have gone when they have got jobs. It is not guaranteed that all our sample have got jobs, but when they have, we have asked them which sector it is in, whether it is self-employment, how many hours they do, whether it is temporary and what sort of contract they have, so there will quite a lot of fine detail from that survey. Again, that will be repeated later in the evaluation process.

If you really want to understand what is going on, my answer to your question is: "Yes. It would be incredibly useful to have that sort of data." Certainly, that data lies with the prime providers at the moment, who have to keep those sorts of overall records to be able to claim their performance payments, so you will have to ask the DWP how much of that information at that level and of that fine-grain detail is being passed up to the DWP for analysis. It would be really useful to see which ones of those, such as those in self-employment, are actually managing to stay on from job entry to six months to 12 months and so on.

Anne Marie Morris: Indeed.

Professor Roy Sainsbury: If you can press for that sort of analysis, then yes.

Q45 Anne Marie Morris: Excellent. We are of the same mind.

This is a question for Tony. Looking forward, Ministers reckon that 30% of participants who started the Work Programme in June 2011 have spent 13 continuous weeks off benefit. How many of those people spent that 13–week period in work? To add to Glenda’s point, there is not necessarily a correlation between the two.

Tony Wilson: DWP has done a research report on claimant destinations across all benefits, which was published last year. On the JSA data, 15% to 20% of people who were not claiming a future benefit were not in employment. Typically, the reasons for that are that they have gone abroad, entered further educational study or have lost their entitlement to benefit, which could be because they are no longer entitled to contributory JSA or that they have been sanctioned. You might expect in the Work Programme that, of the ones who leave benefit, something between two–thirds and three–quarters, or four–fifths, have entered employment and that the rest are not in employment. They are either in study, are no longer entitled to benefit or have gone abroad. Those are the most common things. They could also have retired, for example. There will be a group, and, in effect, that is a dividend to the Department. They can bank that saving without having to pay it as outcomes to providers. However, that has always been the intention in the design of the Work Programme. Those AME4 savings are captured and recycled into programme payments as well.

Q46 Anne Marie Morris: I have one final question regarding a point that Professor Sainsbury made, which was that you have the job starts, but where does that then go to? It is a specific question about self-employment, because the challenge with self-employment is that you start up and you do not get-kerching!-a salary. It builds over time. In terms of the way the system works and rewarding providers, is there enough incentive going forward? You have the start, but then the thing has to continue to incentivise them to really encourage the self-employment route, because judging whether there has been a success in six months is almost impossible.

Professor Roy Sainsbury: I think it is a really interesting issue. I have tried to allude, without pointing fingers, to the fact that it is very easy for a self-employed person to keep in work for six months, but making no money-legitimately-because they are building up their business. You obviously know this stuff. We have just finished a project for DWP on self-employment and Universal Credit looking forward. We get this picture from people that says, "Yes, I have started my business, but I had to build up my client base, my stocks, my production and so on. It will be at least a year, possibly 18 months, before I turn round a profit for the first time, but it is a viable business and that is how businesses go." We know from self-employment research, or any business research, that it does take time. My feeling is that it will be easy for people to reach that six-months point because they will be supported by tax credits. Work Programme providers-JCP staff know this as well-get self-employed people on tax credits, and that helps them. It is a useful buffer. Tax credits provide a guaranteed income while they build up their business. I think that we will find in the stats that most people who start self-employed will still be self-employed in six months’ time. That will be a higher figure than those who go into paid employee jobs. That is my hypothesis. We will find out whether I am right, but I suspect that I am.

Q47 Anne Marie Morris: Sure. I shall make one comment because I appreciate that we are short of time. In conversations with providers, I have been told that not only do a lot of them simply not have the ability to provide the advice and support but there is not enough reward to incentivise them to try to take people down the self-employed route. I have also spoken to sub-contractors who have been lined up to provide that self-employment support and who have now left because no one has referred anyone to them.

Professor Roy Sainsbury: A quick response. I am sure that that is right, but we have also found some areas where self-employment seems to be being mentioned as a possibility to virtually every single client who comes through.

Q48 Anne Marie Morris: If that is the case, that is brilliant. I am getting very different stories about whether there is a benefit win or a benefit loss, and I am hearing more about how there is a problem rather than an opportunity. The devil is in the detail, and I am conscious that we do not have time.

Professor Roy Sainsbury: It is a bit too early I am afraid.

Q49 Graham Evans: I can understand people being uncertain about being self-employed; I fully get that. Our colleague, Gordon Birtwistle, comes from a traditional small and medium-sized enterprise (SME) engineering company. He always goes on about the shortage of engineers and about that traditional engineering technical skill that they cannot get from the young people coming in. An ageing work force in the company is looking for young people to take on those traditional things. What struck me was that those traditional engineering skills from 100 years ago are actually still relevant today in engineering. We have a mismatch; a gap between that 50-something-year-old chap who is coming towards the end of his career and the 20-somethings coming through. How can we fill that? We have SME engineering companies in any community, certainly in the Midlands upwards, crying out for good-quality people to take on real, long-term jobs-a proper career if you like. The skill will stay with those people for the rest of their working career. Any town has such vacancies in engineering companies, yet we have been talking for the past couple of hours about trying to get people into jobs; about trying to persuade them to come off benefits. There are clearly real, well-remunerated jobs in real companies. How do we fill those vacancies with the people whom we are talking about?

Professor Roy Sainsbury: You have gone much wider than the Work Programme. You are talking about skills training, apprenticeships and so on. The answer is that all these things have to play a part. Work Programme providers are probably not in the business of providing apprenticeships.

Q50 Graham Evans: I was not talking about apprenticeships. The employers say that if you give us a good person, we will do the rest. They are not asking for anyone to provide the skills. They will take a good person who is work-ready, who is willing to turn up and learn and they will do the rest. They will train them in the skills that are required. It is not necessarily the wider thing. It is these individuals whom we are trying to persuade into proper jobs. How do you get people into those positions? They are starting an apprenticeship within the company.

Sheila Gilmore: How many such jobs are there?

Graham Evans: There are lots. In most communities-you speak to Gordon Birtwistle-SME engineering companies are looking for 20-something people to replace their ageing work force. They are trying to get the next generation of technicians.

Chair: I think we are going too wide. That is a whole issue about skills training and so on.

Graham Evans: With respect, this is not skills training. I know that is a wider issue. If we have an individual who does not have the skills and employers who are willing to take them on, how do we connect them?

Chair: If that is true, the prime contractors will presumably be wise to that and be engaging with employers.

Tony Wilson: I think they would really know whatever they needed to give them those employers’ details. There is an issue about employer engagement. There is also an issue-I accept that it isn’t this issue-about how effectively Work Programme providers are being able to join up with apprenticeship providers with other skills provision. How many apprentices were previously on the Work Programme? We don’t know, but it is going to be single-figure percentages-it is not a large number. There is an issue about that join-up, but there is certainly an issue about employer engagement. ERSA and the CBI have been doing some really good work about trying to do more Work Programme-wide marketing of the Work Programme offer. One of the problems with providers is that you are building relationships with employers, but you are one voice among 40 at a national level, and Jobcentre Plus and any number of private recruitment agencies. I think that how we get those employers to those providers is a big challenge.

Chair: We will move on to the next section, which is about performance across different groups.

Q51 Sheila Gilmore: Looking at Professor Sainsbury first, there was a comment in the report that creaming and parking, which we have dealt with before, is routine among Work Programme providers. Do you think that that is the case?

Professor Roy Sainsbury: So far, the evidence is that it is there. We cannot put a number on it, but it is still disappointing to find it, and to understand that the reasons for it are the same as they always were. One of the great selling points of the Work Programme was that the differential payment regime was going to deal with the problem of creaming and parking, because providers would be incentivised by big payments to focus help on those hardest to get into the labour market. So it is still going on, and that is from the mouths of provider staff themselves, who say, "Yes, we give more of our time and energy to those closer to the labour market." They have often got explanations for why they park people, although they do not use that language. They say that they haven’t got the financial resources to be able to help them.

Q52 Sheila Gilmore: Is that something to do with the structure of such an outcome-based scheme? Everybody signed up to paying for outcomes rather than just for doing things. However, for some of these groups, as was raised earlier, some people have very specific long-term problems. The evaluation report, and indeed some people within the minimum performance standards, seemed to recognise this more than others. People might have health problems, and apparently that is greater than anticipated, even among JSA claimants, although that is not surprising when you see the outcome of the WCA.

There are people who may have personal issues and debt issues. These are supposed to be addressed. I am sure that we all had presentations from local providers about what they were going to do-they were going to identify these people and so on. That takes time and effort. If you want to help these groups, would it be more sensible to structure it around partial payments for achieving certain levels, rather than saying, "Yes, you’ll get £13,000 if you get this person into sustained employment"? It is all very much in the future.

Professor Roy Sainsbury: It is really interesting, because the payment regime was meant to be the answer. Again, the early days caveat must be applied, but the evidence so far is that it does not seem to be having that effect. Staff at the front line are not being influenced by the £13,000 carrot six months down the line for getting someone into work, because it is not going to be six months down the line-it’s going to be two years down the line, because it is going to take a long time to deal with their health issues, debt problems, housing or whatever. The evidence so far is that the people at the front line are still making those judgments-"Can I get this person into work? What do I need to do to help them? Oh my God, that is going to cost a lot of time and money. We will put those to one side for the moment." That is what we have found from previous welfare to work programmes as well.

At the moment, the evidence is that the differential payment doesn’t seem to be having that hit. Does that mean that it is not enough, and that if it were doubled, somehow providers would think, "Yes, we want our front-line staff to really help these people, because £26,000 is a real pay-off"? I don’t know.

Q53 Sheila Gilmore: The other suggestion I was making, which Ian may have made in his written submission, is rather than say, "Okay, let’s go for the £26,000, and that will be a big incentive," maybe go for something that recognises achievements along the road. Some of the providers, especially the more specialist providers, of which there is one in my constituency, have-this sounds a bit like Alcoholics Anonymous-a several-step programme that they aim to achieve with groups of people.

Ian Mulheirn: That risks going back to the idea that there are two ways of doing things: you either do things by prices or by stipulating things from the centre. This moves back in that direction, because the milestones are set from the centre and you have to say, "Can you make sure you tick a box when that has been done?" That opens you up to questions about how much improvement there has really been, and how much was just recorded. You get into all sorts of murky questions about whether you are actually getting the progress it looks like you are getting.

It is just running a programme in the way in which old New Deals used to be run. We say, "We want you to do this, this and this," and then people make progress. It is just a different way of approaching the problem, and I would argue that it is not very effective. However, the bigger problem is that we have not tried offering nearly enough money for some of these groups yet. It is too early to tell whether creaming and parking can be avoided.

The discussion about creaming and parking always comes up when it comes to payment by results programmes. It is important to recognise that it is not a phenomenon that occurs only with things like the Work Programme. It is hard-wired into Jobcentre Plus. The reason why many of these people do not get the help they need in the first year under the JSA regime is because they are too expensive to help and they need specialist help. Many of them have to wait a year to get to that point. Now, that is parking by the public agency.

Another way of thinking about parking is that it is getting the most jobs for the least money. You might see that as cost-effectiveness. But you might not see it like that, because you might find that you have left somebody on the scrap heap for years, which eventually costs people a lot more money. Nevertheless, political imperatives to get the most jobs for the least money drive parking. If we are worried about parking in the Work Programme, it is a function of the payment system, which is not working. But it is something we see in Jobcentre Plus too; it is not just something that exists only in the Work Programme.

Tony Wilson: That is absolutely right. A feature of trying to support people back to work is that some people will not get the support that they think they should get, or, arguably, that they need. The difficulty that the Work Programme has demonstrated is whether it is feasible for a programme to have only jobs as its objective.

Where do we want people who do not achieve employment outcomes to be two years after they have entered the programme? What sort of position do we want them to be in emotionally and psychologically, in terms of their readiness for work? That comes back to Ian’s point about the long-term costs and consequences of not offering any support at all. That would be extreme, and there is no evidence that anybody is being left with absolutely no help at all. However, those long-term costs could be significant.

The Work Programme is the first time in two decades that we have had a situation where people could be on JSA potentially for three years or more without receiving a meaningful intervention. In every other programme there was always something, whether it was training, employment or anything else, as a backstop. So we need to think more carefully about objectives.

If a majority of people are going to come out of the programme having not secured sustained employment-and even if the programme exceeds its objectives, the majority will come out having not secured sustained employment-where do we want those people to be? That points to the need for minimum standards around keeping jobseekers close to the labour market, for example, and keeping them active, motivated, confident and maintaining their skills. I think those issues are really important. People who have health conditions should be supported to help manage those health conditions and maintain some attachment to the prospect of returning to work. Setting that as interim milestone payments is one way. You could set it as minimum standards. I think you can have a focus on job outcomes and have minimum standards. Most countries’ systems recognise that. The Work Programme is one of the only ones that says that you cannot have both. I believe you can have both.

I have one final point. Many people predicted two years ago-you predicted it in your inquiry two years ago-that setting high outcome payments is a bit of a red herring, because what matters is outcome payments multiplied by the percentage into work. Many people said to your inquiry two years ago that the amount of income earned from ESA groups will be lower on average than for JSA groups, because the likelihood of people moving into work would be much lower.

What has happened is a sort of vicious circle. Performance has been even lower than expected, so payments have been even lower than expected, so now providers are faced with stick or twist. Do I put more money in and massively invest in the prospect of beating what all evidence tells me cannot be done, which is a DWP benchmark for very hard-to-reach groups, and get these very high outcomes, or do I retrench? Do I focus on getting the job outcomes that will be easiest to get? That is the perversity of the high outcome/low outcome payment-the unintended consequence. I think it has driven providers to focus even more on JSA groups. They need to get them into work as quickly as possible, because they have to wait six months for the job outcome.

Q54 Stephen Lloyd: The DWP are not stupid. They are seeing the self-fulfilling prophecy that we warned them about 18 months ago. How are they responding?

Tony Wilson: At the moment, the Minister will say, as he has said publicly, that nothing changes. The payments and the performance expectations are not going to change. If we have to wait three years before we can have that discussion again about what we want support to look like for people who do not get a job, that will be too long. We need to think about what support should like for people who are in the Work Programme, or indeed outside it and a long way from the labour market and perhaps not receiving the support that they need to get a job.

Q55 Stephen Lloyd: It is not just that. It is the thing that you were talking about before: the differential payments that we and others flagged up 18 months ago for the ESA claimants. Because so few are getting into work, they are actually earning less than they would have done under previous schemes. Have the DWP responded to that now that the data are showing that?

Tony Wilson: There is not a strong incentive to, because 90% of the programme participants are on JSA. The programme has turned out to be a JSA programme with a couple of ESA people on it.

Q56 Stephen Lloyd: It was supposed to be the other way round.

Tony Wilson: It was supposed to be two-thirds/one-third, more or less. It would be hard now to reopen the contracts, change outcome payments and introduce intermediate milestones and whatever else. But we should still care about the groups that we cared about two years ago. We need to think about what support should look like, and it may not be employment over all else. It may be employment, and if not employment, support to manage your condition and to maintain an attachment to work, or whatever it may be.

Ian Mulheirn: Tony’s point about the stick or twist nature of this-do you put the money on the table to try to get these very high payments or not?-is part of the wider thing going on in the economy at the moment. Unless people can see growth, jobs and demand coming, they are not going to risk that money, because the chances of getting some of these people into work are very low.

There is a real acid test. Many of these programmes-the Work Programme and Flexible New Deal-were designed in good times when we did not have such a problem with long-term JSA. We worried more about the long-term inactive. In a sense, that group is now getting forgotten while we try and cope with mounting numbers of long-term JSA claimants. When things get back to normal, these kinds of payment structures for the long-term ESA claimants may be appropriate, but we are not going to find out for a long time.

Q57 Chair: So basically there is a mismatch between the policy intent and what is actually happening on the ground. The rhetoric of the Government says, "We are not going to let people lie about in their beds with the curtains closed when their neighbour’s going to work. We are going to get that group into work." But in reality they are the group that nobody is touching, because they are too difficult and too expensive. It is the next-door neighbour who has just fallen out of work who is getting the help.

Ian Mulheirn: The black box explicitly encourages them to leave those people, because the prices aren’t right. You either get the prices right and have a black box, or you get rid of your black box and tell providers what to do.

Q58 Debbie Abrahams: We had an inquiry in the summer about the Youth Contract and getting young BME people into that. The All-Party Group on Race and Community also conducted an inquiry recently on BME women and unemployment. Bearing in mind the question that I posed around the participant survey that you had already done, what evidence is there for the success or not of ensuring that BME groups can access employment? A number of barriers were identified for example, in the race inquiry at JCP and also at work provider level. Is that matched by your experience and your information?

Professor Roy Sainsbury: I do not think we have enough yet, to be honest. The survey will produce its results. The work that we have done so far is on a much smaller scale and is qualitative. It is too early to draw any conclusions about how the Work Programme is operating for any small groups like young black men or women or whatever. I am sorry, but we have to wait.

Tony Wilson: In the performance data that is on the DWP website, you can create those datasets. We have done that and there does not appear to be a significant difference between ethnic minority job outcomes and outcomes for non-ethnic minorities. But it is very early, and part of that may be, as Ian hinted at earlier, a result of the fact that there aren’t huge numbers coming through. Some of that could be statistical, but there aren’t big differences. Where there is a big difference is for disabled people, and also for lone parents. Those do see big gaps. But just one shameless plug: we will be having a conference on ethnic minority employment, looking at exactly these sorts of issues, in the spring. We will make sure that we invite you.

One issue has been that there are a lot of specialist groups, particularly in London, that are simply not engaging with the Work Programme. I spoke to the chief exec of one of those a few months ago, and they said that they just could not do it: they could not make the numbers add up, and so they could not get the money. Now they are being funded through private finance, charitable donations, philanthropy and whatever else. They will talk to providers if providers talk to them, but otherwise they will do their thing, which is with young black men in south London.

Debbie Abrahams: Thank you. I look forward to that.

Q59 Chair: Can I ask, if somebody has run out of their six months of contributory JSA and has a working partner in their household, or savings or whatever, is it possible for them, and for large numbers of people like them, therefore to avoid going anywhere near the Work Programme? Can they just opt out of the system? They are not in receipt of benefit; they could have 30 years of national insurance credits, because they are in their 50s and have been working for 30 years. Do we know how many people do that? It goes back to Glenda’s question: the off-benefit check is not the same as the in-work check. How many are in that position?

Ian Mulheirn: We know the difference between ILO5 unemployment and the claimant count.

Tony Wilson: About 1 million are ILO unemployed and not claimant unemployed. That has increased significantly since JSA was introduced in 1996. Yes, people who are not claiming any benefit fall through; they are never the subject of inquiries or the subject of ministerial thoughts on how you design employment programmes or anything else. There have been good examples: Action Teams for Jobs, which Jobcentre Plus ran for a number of years; in Wales, they have programmes called Workways and Want to Work, which are both trying to reach people who are not on any benefit. So these things do happen. But on the whole it is hard to have a benefit-funded, payment by results programme for people who are not on benefit. With the focus on reducing benefit rolls, they get lost.

Q60 Chair: But many of the people who are still in their bed behind the curtains, and whose next-door neighbours think are the terrible benefit cheats who have never worked, are not actually getting any benefits at all.

Ian Mulheirn: It is worth looking at the gap between ILO unemployment and the claimant count. There was almost no gap back in the mid ’90s. Successive governments, particularly over the last 15 years, have tried to get people off JSA, basically, and to get those rolls down. That has led to a divergence of people who, as you say, perhaps have other means of support, and perhaps are not claiming so much anymore. You end up with this situation where the ones you are putting on programmes are only a subset of the real group of unemployed.

Q61 Glenda Jackson: This section is on the prime contractor model and its impact on subcontractors; in the main you have already answered it. Essentially, is there any evidence to show that voluntary sector subcontractors were used by the primes as a kind of bid candy-that they stood a better chance of getting the contract if they could produce this kind of supply chain from the voluntary subcontractors? We are hearing from those subcontractors-you have said it yourself-that they are simply not being called upon to do anything at the moment.

Ian Mulheirn: I would not be able to give a definitive answer to that question, but there is probably some of that going on, and lots of people seem to suggest that there is; but also, because of the fact that, as Tony said, this has become mainly a JSA programme, the flows on ESA have been much slower. That has meant that the kind of jobseekers who specialist subcontractors might have expected to be getting just have not been coming, so-

Q62 Glenda Jackson: But part and parcel of the initial awarding of the contracts by the DWP was surely that the people who won those contracts assured the DWP that the hardest to reach were their target client base. They are not delivering on that. You have just said they are not delivering on it. They are concentrating on JSA.

Ian Mulheirn: My point was just that there are many fewer ESA claimants than we expected there to be, so it is not surprising, in a sense, that many of the specialist providers are saying, "Hang on. Where are our jobseekers?", and the primes are saying, "Well, we haven’t been sent any either, so we can’t send you any." There is some of that going on, and stripping out the bid candy versus the flows issue-

Q63 Glenda Jackson: You mean they said to the DWP, "Look, we’re in the perfect place to assist the group of claimants that you are most concerned about"-I’ll use IB because that is what we were told about-and now they are sitting there saying, "Actually, none of these people are coming through the doors to us." There is no obligation on any of these contractors to get out there and look for the group of people that they told the DWP were going to be their prime targets to help.

Ian Mulheirn: It is up to Jobcentre Plus to-

Glenda Jackson: Oh, so it’s Jobcentre Plus, is it?

Tony Wilson: Not only is there no obligation to find volunteers. Even if they do, they have at best a 50:50 chance of seeing them, because they are randomly allocated, so in many ways there is a disincentive to go and find volunteers, because you might find a whole load of work-ready people and find they are all with your competitor. This has been part of the problem.

I will just make three quick points. Partly, it is about the evaluation. Roy probably wants to talk about that. There has been much less spot-purchase provision. The evaluation has also suggested that providers were reluctant to refer people to spot-purchase provision, on cost grounds often. The second point, which leads on from that, is that part of this is about the contracts that organisations signed. That itself is a consequence of the speed with which the programme was commissioned, which was too fast, I think, and did not allow for voluntary sector organisations to have a strong hand in negotiations. In addition to that, the DWP code of conduct on procurement, which has existed since 2008, should have, could have, provided some of those protections, but was not enforced as fully as it might have been. The third issue is that part of this is a consequence of less money being in the programme. That is one area where providers appear to be cutting costs.

There is another point related to this, and it is worth bearing in mind. The DWP were saying that the voluntary sector was delivering one fifth-20%-of Work Programme provision. The previous Minister for Employment made this point a number of times: 20% of provision is being delivered by the voluntary sector. If you roll back a few years to 2008, the Third Sector Task Force, which was chaired by David Freud and by Tony Hawkhead, the chief exec of Groundwork, found that one third of provision was being delivered by the voluntary sector at that time. So the voluntary sector, even on the best estimates, has seen its market share fall by a third in the space of three or four years, in a shrinking market.

Q64 Glenda Jackson: But the voluntary sector are telling us that the primes are taking too big a share of the money, so there is no money to pass down to them. But the primes are not actually delivering on those contracts.

Tony Wilson: There is the point, though, that inevitably you will tend to hear from the voluntary sector providers who are having difficulties or issues. I do accept that that does appear to be a significant issue and problem, but there are many voluntary sector providers who are in the Work Programme-I have spoken to many of them-and who are doing a very good job.

Q65 Glenda Jackson: I am sorry: I am not being clear. The question I am really trying to ask is this. The voluntary sector are saying that the contractors are keeping too big a share of the money to start off with, and you have told us that the bulk of what they are doing is with JSA, yet we were told by the DWP that those contracts, when they were awarded, had, as a sizeable part of their winning those contracts, their commitment to work for and on behalf of the hardest to reach-what we call IB claimants. This clearly is not happening, so what should the DWP be doing about it? Surely these contracts should be taken away from these people.

Tony Wilson: The volume of ESA claimants is one-third-34%-of the level that the DWP envisaged, and this is at the root of a large number of these problems. So the DWP need to do two things. They are trying to increase the volumes of the hardest to reach that enter the Work Programme. They will also need to look at how far providers are delivering what they said they would, in terms of engaging with those organisations and those contracts that they said they would and delivering the services they said they would, which comes back to where we started-minimum service levels and how effectively those have been enforced.

Q66 Glenda Jackson: No, it does not come back to minimum service levels at all. It comes directly back to commitments that were made by the Government on how they were going to spend public money in this area, and a bidding process for the contractors, who agreed with the Government that that was going to be the target. We had them sitting in front of us and they told us that they were going to cover the whole range, whether it was mental or physical ill-health or whether it was the kind of illnesses that fluctuated-one thing and another. That was their prime target.

Tony Wilson: And they should be held to that. I absolutely agree. They should be held to deliver what they said they would do in their bids, and what they said they would do in front of you. Part of the issue has been that those people are not in the programme, and part of it has been: where they are on the programme, are they delivering those services? I absolutely agree; there is no disagreement there.

I do think there remains a broad issue about the role of the voluntary sector in the Work Programme and how that compares with previous programmes. The voluntary sector are playing a smaller role in this programme, and I think that presents a whole range of its own issues and problems. The voluntary sector are not always perfect and they may not always be best, but we are seeing less specialist provision. That was predicted before the Work Programme was commissioned, and I think it is a big problem still.

Professor Roy Sainsbury: The evidence of the research we have carried out so far just backs up what you have said. There is less use of the subcontractors, the specialists and the spot providers than we expected. When we look for explanations, it comes back to Graham Evans’s point that the poor performers will always come up with-I love your phrase-Billy Bullshit. There are always reasons why we are not using specialist and spot providers. We have it explained to us that it does not make economic sense to us, as a prime, to do this, so we bring the work in-house. That is when you get the specialist providers making those very comments: "They are taking all the money themselves." Yes, the evidence so far is that that has happened.

Q67 Glenda Jackson: Are the stats there to prove that?

Professor Roy Sainsbury: I do not think that the stats come from our research.

Q68 Glenda Jackson: But should they be there? The contractual obligations, surely, should be part of the public-

Professor Roy Sainsbury: It should be possible to find out how many of the people in the supply chain actually got things. The survey of participants we are carrying out is asking them, "What have you had? Who have you been referred to?" That will furnish us with quite a lot. I think we will find-my hypothesis is-not a lot. That is what has come out of the qualitative work we have done so far with participants. Very few have got that sort of specialist provision.

Q69 Glenda Jackson: So, essentially, one of the main targets that the DWP told us of the Work Programme was the hardest to reach. These specialist organisations are not being utilised for those specialist groups, so it ain’t going to work.

Professor Roy Sainsbury: Not at the moment, no.

Ian Mulheirn: I think the broader point about not so much the third sector but the subcontracting tier-whether private, third sector or whatever-is that those who are in and are getting referred people are taking on a huge amount of risk. When we look at the invitation to tender, that document explicitly prohibited organisations with a turnover of less than £20 million from bidding. The reason for that was sound; it was that this is a risky project and if you do not have a big enough balance sheet, you cannot carry out risk. But now what we are seeing is that, for three reasons, these large organisations are-because there is no money in the system, there are no jobs-passing that risk on.

First of all, many of them are taking the easier people who are closest to the labour market and referring on the harder to help. That was always intended, but it does mean that you are very unlikely to get any outcomes for those people, and certainly not quickly. The second is that there are not very many people being referred. If you are a specialist you have only got a small number of people, and there is a very high risk that you are not going to get anyone into a job and, therefore, that you will get no money at all.

The third is the terms. The proportion of the payments based on outcomes that is going to the subcontractor is higher, in many cases, than the proportion of payment on outcomes that the DWP is offering to the prime, so the prime is taking less risk even though it was there explicitly because it could bear more risk. We have got this inverted system where the prime, instead of being paid to bear risk, is just delivering a contract management service, and the subcontractors are taking on risk when they were explicitly prohibited from bidding for the prime contracts because they could not bear that risk. The system is a bit upside down at the moment, and that is the thing that DWP needs to look at if it is not completely to wreck the innovation of the subcontracting layer.

Q70 Chair: Can I ask about onflows coming into the Work Programme from the ESA WRAG? The Government have changed the mandating, so anybody who has a 12 month prognosis will be mandated. On the surface, we could say that is good news for the voluntary sector because they might get some of those people. But, actually, those people are going to be even further away from the job market than the ones they are getting at the moment, so the chance of getting them into work is even less. They end up with a lot more referrals but of people they will not be able to do anything with because they are too ill. Even by Jobcentre Plus’s analysis they are still at least 12 months or more away from being work ready.

Tony Wilson: That is absolutely right. Essentially, the proportion going to get jobs is likely to be lower and therefore the unit funding is likely to be lower. Therefore the risk is greater, as Ian said.

Q71 Chair: Can I ask just one question about the Merlin standard? We heard a lot about that when we were doing our last report, and how it was going to solve everything and protect the subcontractors and the supply chain. Is it? Is anybody doing anything with it?

Tony Wilson: Merlin is doing what it was established to do, which is to ensure that providers have followed the contractual terms that they said they would and that they have met the code of conduct set by the Department. It is doing some good work around some of the more proactive sharing of practice and setting standards for the future.

What it is not is a proactive regulator of supply chains. If we want it to have that role-and I think there is a strong argument for that-for it to be successful, it needs a code of conduct that has the teeth to give it things to regulate and enforce. The reality is that if a subcontractor signs a bad contract, they are in trouble, whichever way you cut it. Merlin will never address that.

Chair: That was one of the points we made in our recommendations. It really needs teeth. Have colleagues got anything else they would like to ask?

Q72 Nigel Mills: Can I just ask one quick-probably difficult-question? Is there anything that you think DWP needs to change urgently with the Work Programme to stop this going off the rails? Do you think it is a case of hoping the economy is better for the next year, things should tick along and it ought it work as planned?

Tony Wilson: If I go first, briefly. I don’t think the Work Programme will go off the rails. I just don’t think that, without change, it will be the tearaway success the Government were claiming it would be 18 months ago. The change that I would consider making would be to recognise the fact that funding per person is lower now as a result of the recession, potentially significantly lower. Identify the level of that shortfall, if you like, and think about ways that you can localise that funding: put it in a dual key in the hands of local partners, City Deals for example, Local Enterprise Partnerships (LEPs) or, indeed, local authorities, at local level.

Let them and the Work Programme Providers work out how they want to spend it, to do additional stuff that would not have been done otherwise. That would be exactly the sort of stuff that providers at the moment can’t afford to do because they have had to cut costs. That would be what I would do. I would also use it to address the fact that there are areas of the country where the economy is far weaker and those are the areas that we should target. I would do that as well, by the way, with the Youth Contract money. When I appeared on the Youth Contract inquiry, I said, "Give it to Work Programme providers." I have changed my mind now and say, "Give it to the city deals and let them sort it out, and let them combine it with other funding."

Ian Mulheirn: Tony is absolutely right. There will not be evidence of it going completely off a cliff, because providers can just cut their spending at the front line. The profit maximising thing to do here is to spend absolutely nothing and wait until some people get a job of their own accord and take the money for free. That is the way the system works.

You won’t see anything going off the rails. But, if you want to have a decent service that will stop people becoming long-term unemployed once the good times return, you need to ensure that there is a service provided somehow. I think Tony is right that you need to use the shortfall in money the Government are unexpectedly saving and reinvest it in some services somewhere in order to try to keep people attached to the labour market.

Professor Roy Sainsbury: I would sit tight for at least another year. However, if I were DWP, I would start to think about the differential payment regime and start playing around with alternatives, and I would start to think about the possible consequences and implications of the loss of the attachment fee. It has been a complete buffer and cushion that has kept the whole thing going so far: £400 per claimant, £300 per claimant, nothing. That is going to have a big impact. It possibly needs to be re-thought.

Q73 Graham Evans: I think we should look at the LEPs and the Chambers of Commerce, the point I alluded to earlier. If you get people who know the local businesses getting involved in this, I think that is the long-term future. That is the local knowledge rather than the DWP based in bloody Whitehall and down south. Get those regions on a local basis that can match the long-term unemployed to businesses that are looking for new workers. That is the long-term view.

Professor Roy Sainsbury: I think you are right. In the end, you have got to match up what the Work Programme does, which improves the labour supply a lot, with the demand for labour: where it is, what is required.

Stephen Lloyd: Within that, if I could make one point. One of the good things in the system is that you will be able to see within your local areas which of the primes or subs are doing better than the other. When they come up the next time or in two years-I can’t remember exactly when-I would expect the more successful contractors to get a very hefty bonus by having more of the ESA and JSA claimants sent their way.

Chair: The more difficult ones.

Stephen Lloyd: Reward success. That is part of the process. One of the good things that I think will be an asset is that success will be rewarded, though it is very challenging.

Chair: May I say thank you on behalf of the Committee for coming along this morning? It was very interesting and illuminating. Your evidence will be very useful to us.

[1] Employment and Support Allowance

[2] Jobseeker’s Allowance

[3] Black and Minority ethic

[4] Annually Managed Expenditure (the part of the DWP budget from which benefits are paid)

[5] International Labour Organisation – one of the standard measures of unemployment

Prepared 20th May 2013