Tim Riley from CESI outlines a way to ‘fix’ the Work Programme funding model for ESA claimants

Last week, Inclusion published a new report, Making the Work Programme work for ESA claimants,  which sets out the problems with the funding model for Employment and Support Allowance (ESA) claimants and what could be done to fix it. The report is a part of a wider project called Fit for Purpose, supported by 22 organisations and looking at the future of employment support for people with health conditions and disabilities.  The final report will be available in the summer.

Specifically, we argue that a toxic mix of a weak economy, low referrals to the programme, changes to the rules on who is referred, under-performance and setting the targets too high in the first place have combined to lead to big shortfalls in funding and support for those on the programme. 

Our calculations suggest that around 11% of ESA claimants that are required to take part in the Work Programme would have achieved a ‘job outcome’ if the Work Programme had not been introduced. The DWP, however, set their estimate at 15%.   These targets have been missed in every contract, and as a consequence – because the Work Programme is a ‘payment by results’ programme – funding to support ESA claimants has been substantially lower than anticipated.

Of course, you could see this as a policy success: performance has been below expectations but the DWP has not had to pay so much to providers – so the risk of failure has been successfully transferred away from tax payers. But this would be a pretty short-sighted view.  The state still picks up the tab through the benefits bill, and lower funding means more people out of work for longer and receiving less support. We estimate that the money available to providers to deliver services to ESA claimants (based on DWP spend on ESA customers) is likely to be about 40% lower than was originally planned, with DWP likely to spend on average £690 per ESA claimant compared to an estimated £1,170 when the programme was designed. And this is going to get worse: as of April 2014 there are no more ‘attachment payments’ paid to providers when customers join the Work Programme, meaning that at current performance the DWP will pay providers on average only £550 per participant – which needs to cover two years of support.

When these figures are grossed up, taking into account lower referral numbers as well as lower performance, we estimate that the Government will invest less than half of what it intended to on supporting ESA customers through the Work Programme – with spending around £350 million compared to the £730 million expected.

In the event, we find evidence that Work Programme providers are actually spending a bit more than they receive from DWP on ESA participants, in order to maintain some levels of service.  In effect they are cross-subsidising from outcome payments for Jobseeker’s Allowance participants. Whilst this may be helping to paper over the problems with the payment model, it is clearly neither satisfactory nor sustainable in the longer term.

Our report sets out an alternative model that we argue should be implemented for the remainder of the programme. This new funding model is based on four key assumptions:

• That spending should be restored for new participants to the same level as was originally intended – but foregoing the ‘savings’ that have already been banked by the Government;
• That in return for increasing funding we should expect increased performance;
• That the model should remain strongly outcome-based, so that risk is shared between the taxpayer and those providing services – in our proposal, around three quarters of funding would be linked to jobs; and
• That funding should be highest for those that need the most support (and specifically, those who used to claim incapacity benefits).

Our proposed payment model is below. 

* Same overall levels as current model, but paid over 9 months after job outcome payment.

Without reform, in our view the funding model for the Work Programme is set up to fail ESA claimants, particularly those joining over the next two years.  Whilst we and many others are rightly thinking about what should come next with ‘Work Programme Mark 2’, it is critically important that the Work Programme Mark 1 works for ESA claimants. Our report shows the failings of the current payment model for ESA groups, and a way forward that is achievable and would cost no more than the Government had planned.

Blog Post by Tim Riley, Centre for Social and Economic Inclusion