The joys of annually managed expenditure - a look at the Work Programme

The Work Programme – described often as the government’s “flagship welfare-to-work” scheme – represents an important shift in the delivery of these programmes. Rather than being funded from a limited pot of money (the “Departmental Expenditure Limit” – DEL) the scheme is funded by a demand-led approach (the “Annual Managed Expenditure” – AME).

In previous programmes the provider of service was contracted to provide a given number of “outputs and outcomes” (e.g. number of people entering the programme – and output, or people into jobs – an outcome) and remunerated on that limited basis.  Under the Work Programme the only limit, in theory, is the number of workless people – the payment to providers is set against the savings to the overall welfare budget.

There are some important elements to consider here. Firstly, the government can invest more on finding work for those people who are more expensive to maintain on benefits – single mums, disabled people. 

Secondly, the government has shifted much of the risk from the department to the provider. The payments are on results – there are few payments for outputs and much of the money comes after the client has been in work for six months, one year and two years. In principle this means that the provider has a real incentive to get clients off welfare and to keep it that way for two years.

The Social Market Foundation thinks there’s a problem – the providers aren’t going to hit the targets (these are minimum numbers) set by government:

At least 90% of organisations involved in delivering the Government's flagship back to work scheme, the Work Programme, risk having their contracts terminated because of unreachable performance targets set by the Department for Work and Pensions (DWP). The Social Market Foundation, the think tank originally behind the idea for the Work Programme and responsible for the analysis, said that without an urgent rethink of the performance criteria this could lead to the failure of the entire scheme with potentially dire consequences for the 2.4 million long term unemployed it is designed to help.

We need to understand that SMF’s analysis is based on the performance levels of welfare-to-work providers in the last government’s “Flexible New Deal” programme. Indeed, under this analysis there is a problem. However, this does rather assume that the shift from a programme delivering to a pre-determined set of outputs and outcomes to one based on payments on results will not alter the performance of providers. This seems unlikely to me.

And the people who own these businesses seem to think it’s a fair bet too as Chris Grayling, the minister concerned points out:

"The Work Programme is the biggest payments-by-results scheme of its kind in the world. The providers are investing £500million of their own money into it this year alone, and they wouldn't be doing that unless they were confident of making a real difference in getting people into sustainable employment and achieving results."

And more to the point - if the providers miss their targets, there is little or no loss to the government. So more incentive to deliver (that's where the money is) and less downside risk. Seems like a good deal to me.

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