The Government’s flagship back-to-work scheme, the Work Programme, is a bold and innovative policy to tackle long-term unemployment. By paying private and voluntary sector providers for each client who finds a job, the scheme encourages contractors to develop tailored solutions fitting people’s very personal barriers to work. But recent Social Market Foundation (SMF) analysis shows that the programme is at risk of collapse under the weight of the financial risk involved (see article). With similar policies under consideration for fields such as offender rehabilitation, we must learn the lessons of the Work Programme if the government’s public service reform agenda is to succeed.

The SMF’s paper used the performance of Labour’s Flexible New Deal – the Work Programme’s forerunner – to predict the new system’s effectiveness. Unfortunately, the evidence is not encouraging. Unless contractors raise their game significantly, they look set to undershoot the minimum number of jobs expected of them by 30,000 over three years. Even by year three, it seems likely that around nine out of ten providers will underperform DWP expectations. This, combined with the fact that providers have substantially less money available to fund their work, implies that the programme is at significant risk of failure.

In the face of a stagnating labour market, it would seem sensible for DWP to ease up on its expectations for providers. In addition, the DWP should consider whether it’s trying to pile too much risk onto contractors by attaching all its funding to success in getting people into jobs. Given the risks, investors will want to extract a high price for bankrolling the programme. That will sap resources at the frontline, meaning that taxpayers won’t get much service bang for their Work Programme bucks. And that’s before the cost of any late bailout of failing providers is considered.

All of this carries important lessons for other payment-by-results programmes. Most importantly, policymakers should recognise that off-loading all the financial risk for achieving good policy outcomes onto contractors isn’t the same thing as good risk management. Ultimately, doing so can end up costing the taxpayer more and result in poorer services. It would be unfortunate if the government’s exciting reform agenda were to be derailed by taking too many risks with risk.

Ian Mulheirn is director of the Social Market Foundation.

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Written by Ian Mulheirn