Who benefits from the benefits system?

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 Jobcentre Plus was created in June 2001, bringing together the Employment Service and parts of the former Benefits Agency. It was the New Labour government’s second ‘radical overhaul’ of the welfare system, with the aim of “help[ing] the large numbers of people on benefits to find meaningful employment.” Gradually, as Jobecentre Plus was allegedly failing to achieve what it was set up for, most of its services were outsourced to private contractors. The ‘unemployment business’ has now become a vast, lucrative market, yet ‘customers’ receive increasingly poor services.

 

The old New Deal

Since the late 1990s, there has been a steady trend to get people off benefits and into work. This has been manifest in repeated efforts by the Department of Work Pensions (DWP) to devise programmes aimed at enticing and/or forcing people to obtain employment, through restructuring the benefits system to make it more difficult for people to stay on benefits for long and, more recently, through a full-fledged war on lone parents, disabled people and ‘benefit cheats’ (renamed ‘benefit thieves’ in 2009).

An instrumental part of this strategy has been the New Deal programme, first introduced by the Labour government in 1998 with the stated purpose of reducing unemployment by providing training, subsidised employment and voluntary work for the unemployed. Funded by a one-off £5bn windfall tax on privatised utility companies, it was initially piloted on unemployed youth. New Deal programmes were subsequently expanded to include various groups, including lone parents, people with disabilities and over-50’s.

One of the key architects of the UK’s version of New Deal is said to be LSE professor and founder of the Centre for Economic Performance, Richard Layard. Layard was an early advocate of the welfare-to-work approach to unemployment that would later materialise, in its most recent incarnation, as the Flexible New Deal. Between 1997 and 2001, Layard helped implement these policies as a consultant at the Department for Education and Skills, which was also responsible for employment until 2001 when the Department for Work and Pensions was created. In 2000, he became a Labour life peer in the House of Lords.

It is perhaps telling that a liberal economist, who graduated from Eton and Cambridge, would devise, or advocate, a ‘deal’ that unemployed people have no choice but to accept. In essence, it is the same deal offered by the business class to workers time and again: If you don’t like the little money we give you, you can just leave and starve to death.

 

The black box

In April 2007, responsibility for employment programmes delivered by external providers was transferred from Jobcentre Plus to the DWP’s Work, Welfare and Equality Group (WWEG) and Commercial and Estates Directorate (CED). A newly created Delivery Directorate within WWEG took on overall responsibility for the design, commissioning and performance of such programmes. In a letter to providers, David Smith, DWP’s Commercial Director, and Matthew Nicholas, Jobcentre Plus’s Director of External Relations and Communication, explained that “the movement [...] will provide greater clarity of respective roles for Jobcentre Plus and DWP.” In reality, this meant a greater role for the private sector, not only in delivering the programmes but also in designing and implementing policies.

In February 2008, the then Work and Pensions Secretary, James Purnell, set out his “three C’s” in an ‘historical’ speech that paved the way for the welfare reforms that followed. Purnell’s three Cs, echoing Roosevelt’s Three Rs during the Great Depression (Relief, Reform and Recovery), were Capability, or “helping people stay in and return to work”; Control, or “giving people choice and control over services”; and Contribution, or “modernising the benefit system.” Modernisation and innovation, as we have come to know so well, often mean subtle privatisation. Indeed, the DWP commissioning strategy, which was published that same month and set out the department’s “vision for modernising and strengthening the welfare to work market,” recommended “longer, larger contracts” (5–7 years) and “a focus on place not structures, with top-tier providers taking a more strategic role.” While smaller, specialist providers were still to be “encouraged to flourish and develop” through subcontracts, this was something of a departure from the old ‘local partnerships’ approach (Local Strategic Partnerships and Local Area Agreements).

In management jargon, this is sometimes referred to as the ‘black box approach’: “greater responsibility but shar[ing] risk and encourag[ing] innovation,” to quote a DWP presentation on employability provision and sub-contracting. The scientific definition of the black box method, however, might be more accurate in describing the reality of New Deal: a device or system that is viewed from an external perspective, solely in terms of its input, output and transfer characteristics, without any knowledge of its internal workings.

 

Contracts and partners

Until October 2009, when phase one of Flexible New Deal came into effect, the DWP had 121 contracts with 51 private and ‘third-sector’ agencies and organisations to deliver New Deal programmes in the UK’s 11 regions. Of these, only 16 were described as ‘voluntary organisations’, including such names as BTCV, Careers Development Group, CSV Training, SCVO and YMCA Training (see page 11). The 35 other contractors were all private companies specialising in ‘employment services’, such as job search and training. Most of the contracts were for two or three years but some were for up to 12 years.

By far, the largest number of contracts, 16, was awarded to the Training Network Group, followed by A4e (formerly Action for Employment) with 11 contracts. Other big ‘partners’, as the DWP often describes them, included Support Training (7 contracts); Pertemps, Seetec, Triage Central and Management Introductions (5 each) (see page 7 for a full list).

 

New Deal private sector providers and the amounts

 

received from the DWP in the financial year 2008-9

Provider  Spend 08-09
A4e (11 contracts) £84,433,506
Access Training South West Ltd £265,567
Best Ltd (2 Contracts) £14,324,285
Birmingham Chamber of Commerce £2,056,355
Careers Wales Cardiff & Vale £84,685
Crosby Training (2 Contracts) £2,478,492
DASH Training South Wales £1,919,478
DMT Business Services £773,192
Glasgow Mentoring Network £47,546
Inbiz £758,366
Inspire to Independence £3,688,027
Juniper Training £2,408,592
Management Introductions (5 Contracts) £1,785,408
Manpower UK £3,243,918
MBW Training Services(2 Contracts) £1,583,963
Pertemps People Development Group (5 Contracts) £33,903,613
Prospects Services £1,268,852
Quadrant (2 Contracts) £132,894
Reed £47,111,328
Scottish Cultural Enterprise Ltd £63,333
SEETEC (5 Contracts) £16,653,137
Sencia £6,006,267
Shackleton Associates (2 Contracts) £885,604
Skills Training (2 Contracts) £8,085,783
Standguide (3 Contracts) £2,225,362
Steps to Work Walsall £5,843,184
Support into Work £269,600
Support Training Ltd (7 Contracts) £910,361
TBG Learning (3 Contracts) £8,888,502
Training Network Group Ltd (16 Contracts) £240
Triage Central Ltd (5 Contracts) £5,259,740
Work Directions £45,533,303
Work First £4,410,327
Working Links (3 Contracts) £56,581,024
WTCS (now Max Employment UK) £920,019

New Deal spend figures for the financial year 2008-9, obtained by Corporate Watch under the Freedom of Information Act, show that A4e was paid £84,433,506 in that year for its 11 contracts, 10 of which were for 6 years and 10 months. The second biggest beneficiary was Working Links, which received £56,581,024 for 3 contracts, two of which were for 3 years and 2 months and one for one year and 11 months. Other fat contracts included Work Directions (one contract, £45,533,303 in 2008-9); Reed (one contract, £47,111,328); Pertemps People Development Group (5 Contracts, £33,903,613) and SEETEC (5 Contracts, £16,653,137). Strangely, the largest contractor of all in terms of the number of contracts, the Training Network Group, received only £240.

Needless to say, the details and specifics of these contracts are kept away from the public under the pretext of ‘commercial confidentiality’. However, it is known that the majority of Jobcentre Plus provision is funded through a so-called ‘formula funded’ system, where providers are paid on the basis of a universal ‘unit price’, or a fixed amount of money for the same service provided no matter who the provider and how large the contract is. This ‘unit price’ is typically split between fixed programme delivery costs and ‘outcome payments’, which are mainly focused on what are termed ‘job outcomes’ and are paid after an outcome is deemed to have been achieved (for example, when a participant finds a job and leaves the programme). The programme delivery element is paid at a weekly rate determined by the planned length of the programme. The ratio between the two elements is often 70 to 30 percent. Thus, for each so-called customer on New Deal for Young People, for instance, the total ‘unit price’ ranges between £848 and £1,186 for eight weeks. The weekly programme delivery element for this course is calculated by taking 70% and dividing it by eight, which gives £74.20 – £103.78 per customer per week.

 

Profits and profiteers

None of the private providers contacted by Corporate Watch was willing to discuss the amounts they spend on, and the profits they make from, their New Deal provision. With some simple maths, however, it is not very difficult to come up with some rough estimates. Let’s take A4e as an example.

In 2006, A4e Central London won the prime New Deal contract for Camden and Islington. Both London boroughs have an A4e office that work with Jobcentre Plus partners in the area. A4e Central London employs approximately 40 staff and, in 2008, had 438 New Deal participants. Of these, 223 were based at its Holloway centre, 83 at the Kentish Town centre and 132 at subcontractors’ centres. To deliver its full-range provision, the company subcontracted to Kennedy Scott, A2Train and Metropole College.

In 2008, A4e overall had some 13,000 New Deal clients at its 100 or so centres throughout the country. This represented approximately 50% of the company’s activities, but 40% of it was subcontracted to smaller providers. In 2008-9, A4e received £84,433,506 for New Deal provision; that is, more than £6,000 per client. So assuming that the A4e Holloway and Kentish Town centres only provided New Deal programmes -which is not, of course, the case- the centres would have generated at least £2.5m only in one year. There are no accurate figures available but it is difficult to imagine that the running costs of both centres would exceed half of that amount. In fact, participants often complain that computers are old and insufficient in number, that staff are too busy and such like. Jobcentre Plus states in its Provider Guidance that it “does not, in principle, object to providers seeking to generate additional income from the service they are providing through any Jobcentre Plus contract.” This may explain why the same staff and equipment are often used for other services, such as advice and learning, while charging the government as if their sole purpose is to deliver one programme.

As a result of these lucrative government contracts, the Sheffield-based training company has grown steadily since its establishment in 1991 to become a small transnational company with operations in 11 countries across four continents, including ‘new markets’ with ‘growth potential’, such as Poland and Israel. In the UK, it is the largest supplier of employment services as a prime contractor with the DWP. In 2009, the company’s revenue was £146m, 63% of which derived was from employment and welfare services. Its operating profits before tax in the financial year ending 31st Match 2009 were just over £6m. A4e’s other business includes telephone-based legal advice on behalf of the Legal Services Commission and employer programmes to “improve the capability of their workforces.” While A4e remains the biggest and most ‘successful’ shark, the same could more or less be said of all the other big private providers: Pertemps, Working Links, Seetec and so on. One could give example after example had there been enough space here.

Other benefactors of New Deal programmes include employers who are paid ‘subsidies’ for up to 26 weeks for employing participants (as if employers hire employees as a favour to the employee). This is £60 and £75 per week for full-time and £40 and £50 for part-time, under New Deal for Young People and New Deal 25 Plus respectively. Although not all employers take up this offer, the DWP spent nearly £41,000 on New Deal employer subsidies in 1999-2000. In 2004-5, this was over £15 million.

 

The real benefit cheats

There have recently been a number of scandals and investigations into alleged fraud and misconduct by private companies contracted to deliver employment services. In May 2008, for instance, the DWP had been investigating A4e and at least two other undisclosed training providers for fraud for over a year. A minimum of 20 cases of fraud were discovered at an A4e centre in Hull, where two staff members had apparently falsified employer forms and forged signatures on them in order to receive ‘job outcome’ bonuses from the DWP. A4e was also reportedly involved in a temporary job recruitment agency scam, forcing New Deal participants into temporary work, which resulted in more ‘job outcome’ bonuses. Despite the ongoing investigation, A4e was not blacklisted or restricted from bidding for Flexible New Deal contracts and eventually won the largest number of contracts amongst all the bidders. This is unsurprising, perhaps, when we learn that the company’s advisory group includes such highly esteemed members as David Blunkett, the former Work and Pensions Secretary who was forced to resign, for the second time, following revelations about his external business interests during his brief time outside the cabinet, and the former permanent secretary at the Department of Trade and Industry, Sir Robin Young.

Another example is Pertemps People Development Group, which continued to receive payments as usual under its £2,259,282 two-year contract that ended in June 2008, even though a Jobcentre Plus monitoring report dated 7 November, 2006, clearly stated that, “there are still major issues that need to be addressed to meet with contractual compliance.” A letter by the Jobcentre Plus director of programmes, dated 20 November 2006, stated that “Jobcentre Plus [is] satisfied that the contract is being delivered to the required standards.”

Since Maatwerk had its contract terminated for fraud in 2008, only two other New Deal providers are known to have been forced to repay fraud money, the first being A4e (£15,000) and another provider whose name has not been disclosed (£48,000). It is known, however, that Jobcentre Plus and the DWP have received numerous complaints and requests for investigations concerning various providers. Most fraud cases so far - at least, those we are aware of - have been primarily related to forged signatures and falsified forms. Other alleged fraud practices that the DWP has not yet picked up, but are widely reported by participants and observers on the web, include timesheet abuse, dismissal abuse (dismissing participants for false or trivial reasons to receive the full 13 weeks amount), guaranteed job bonuses abuse (some participants may receive a job offer before the course starts and providers still get job outcome payments, even if they had nothing to do with finding the participant a job) and future job outcome bonuses abuse (forcing participants to enter an agreement whereby the provider has ‘permission’ to contact any future employer after the course has ended to obtain a job outcome bonus even though the participant would have found the job after the course had finished, unaided by the provider).

 

Targets and results

Whenever the DWP is asked - in parliamentary questions, for example - for an assessment of New Deal, spokespeople reply with statistics concerning how many long-term unemployed people have been ‘successfully helped’ off benefits and into work. What is almost always missing is how and what kind of work has been offered to, or forced onto, people.

When asked in parliament in March 2007 how many people had been on the New Deal programme more than once (those commonly known as ‘retreads’), the DWP’s Jim Murphy chose to precede his figures with the following statement: “Some people will return to New Deal after leaving the programme, but this is inevitable in a dynamic labour market.” (‘Flexible’ wasn’t then a buzz word.) The plain answer, as the statistics showed, would have been ‘increasingly too many.’ And the main reason is that ‘customers’ are being pushed to do any job available as soon as possible.

This is sometimes referred to as the ‘work first’ model: the best way to improve a person’s position in the labour market, it is argued, is for them to move quickly into work, any work. Unemployment programmes, thus, have come to focus primarily on compulsory job searches and short-term interventions to facilitate a quick return to the job market, which is quite different from the ‘human capital development’ approach of the welfare state. Sometimes this is done in subtle ways, such as career ‘planning’, job search ‘advice’, ‘training’ and so on, but often through pressurising people into getting a job to avoid ‘all the hassle.’ As a result, job searches have become synonymous with intimidation and harassment by staff; training with ‘employability’, or increasing a person’s chances to find any job; the gap between professionals and ‘unskilled’ workers has increased; and overall everyone enjoys less security, in what is often termed the casualisation of the labour market.

While standards may vary between one provider and another, it could be argued that this prevailing free market ideology, added to the companies’ profit-driven structure, does not allow for any other mode of work. It is unsurprising, then, that this mode would culminate in the recent welfare ‘reforms’ and the ‘work for your benefits’ pilot schemes, where welfare becomes an earned privilege rather than a right.

As for the participants themselves, the most common experience is sitting on chairs all day doing nothing, except competing for old computers and being interrogated by over-stretched staff. “It’s demoralising,” one A4e client said, describing his experience. “Degrading and humiliating treatment,” added another. “A complete waste of time”; “a de-skilling exercise” and so on and so forth. In fact, an increasing number of websites, such as newdealcomplaints.co.uk, are solely dedicated to sharing such experiences; experiences that are, paradoxically, often used to justify the privatisation of public services.

The other common experience is the necessity of lying to survive through such an unjust system. Mocking A4e’s slogan “Improving people’s lives”, one participant commented, “All they do is improve people’s lies.” Asked whether this was a good or a bad thing, the ‘retread’ replied, “New Deal is bad for your health.” The same could be said of most, if not all, aspects of the new benefits system; it is bad for the well being of individual claimants and the welfare of society as a whole. The only exception seems to be the private contractors, for whom New Deal and other ‘welfare’ programmes have been golden business opportunities.

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