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PRIVATE contractors are being overpaid on a £1.7 billion scheme for the unemployed, according to the National Audit Office (NAO), the government spending watchdog.
Some of the contractors getting too much cash for too little work include infamous privatisers like Serco and G4S.
The scheme, Restart, was designed to stop post-Covid unemployment from rising. This is another Covid contractor rip-off story. Despite this, the NAO report was entirely ignored by the newspapers.
The Labour Party also ignored this report. Labour’s lack of engagement, given the party’s recent claims it will crack down on government waste, looks odd. It ignored this NAO report despite being committed to creating a sort of “super-NAO” when elected.
My worry is Labour is ignoring this exposure of a “back to work” scheme because it also wants to have large, contractor-led schemes like this when it enters government.
The Conservatives launched Restart in 2021 to offer “intensive” work coaching to the unemployed until 2025.
The Department for Work and Pensions (DWP) expected unemployment to grow as Covid knocked people out of jobs. However, post-Covid labour shortages mean only half the expected 1.4 million claimants will go on the scheme.
Lower post-Covid unemployment should be good news — but overfriendly deals with contractors mean the DWP is overpaying for the reduced number of participants.
The NAO said: “The average expected cost per participant has now increased from £1,800 to £2,429, making Restart more expensive than similar programmes.”
Alongside the usual suspects, Serco and G4S, we can find Reed in Partnership, Maximus, Seetec and Ingeus. It’s big money: Serco’s contract alone is worth £255m.
The contracts are a “hybrid” of payment by results and fixed fees. This means government payments to contractors only partly decrease despite a big fall in participants.
The NAO says the DWP focused on helping privatisers “build their capacity” and “co-operation” with outsourcers so it “had to focus less on creating competition on price and performance.”
This meant when drawing up these contractor-friendly plans, the DWP did not properly consider “contractual mechanisms to reduce costs further if demand was significantly lower.”
The NAO itself said: “We believe Restart could have cost less.”
Restart is based on the Work Programme, the government’s privately delivered unemployment scheme of 2011-17.
The Work Programme was notorious for fiddles and even fraud by contractors, including “parking and creaming.” Contractors “parked” difficult-to-help unemployed folk like those with disabilities and “creamed” off fees for those who would get jobs anyway.
The signs are contractors are “parking and creaming” again. The DWP “introduced nine new customer service standards which providers have mostly failed to meet. These are designed to reduce the likelihood of providers solely focusing on people who are easier to get into work.”
There is also duplication and “inefficiency” between in-house DWP work coaches and private contractors’ coaches as their “systems to deliver Restart are not integrated into the Universal Credit system that DWP work coaches use.”
Claimants must tell contractors lots of stuff they already told the DWP and so “participants may find the process duplicative and not as productive as it might be.”
While the NAO considers contractual ways the DWP could have avoided overpaying, it does not look at the perhaps more obvious approach — doing the scheme in-house.
Then the DWP would have built its capacity, rather than G4S and co, and would not have been contractually forced to overpay when the scheme turned out smaller.
Costing over £1bn, Restart looks like another overgenerous, wasteful Covid scheme, favouring government contractors.
But the NAO report, released last December, got almost zero media attention.
Maybe what happens to the unemployed is just not sexy enough for newspapers. The lack of attention from Labour also suggests it might want to run similar privatised “workfare” schemes if elected.
Children without trust funds
The NAO also recently found a huge failure in the Child Trust Fund (CTF), a key New Labour scheme promised in the 2001 general election manifesto and launched in January 2005.
In 2001 the press reported Labour would “unveil its big idea for the second term” — this was the CTF.
All children born between 2002 and 2011 were given a £250 fund at birth. Kids in care and from low-income families also got an additional £250 paid into this savings account.
Families were encouraged to invest more in the fund. Children could only spend the money when they reach 18 as the account “matures.”
Then education secretary David Blunkett called CTFs “a vital first step on the road to self-reliance, taking people out of the dependency culture and giving them a real stake in society.”
He added: “It’s about the state helping you to help yourself — a something-for-something approach so that people can take a greater responsibility for their own future.”
Child poverty campaigners countered it would be better to fix emergency payments to benefits claimants immediately as there were families who just could not afford a cooker, rather than think about putting money into the future.
By now the first CTF recipients have turned 18. This week the NAO found that, far from becoming an engine for social change, the scheme has been a waste: 175,000 of the 320,000 fundholders who turned 18 by 2021 cashed in their fund, withdrawing or reinvesting £376 million from “matured CTFs.”
But nearly as many — 145,000 — have not claimed the cash, so £394m is sitting unclaimed. That’s quite big money already, but there are plenty more kids with CTFs still to turn 18.
The government paid more than £2bn into CTFs for 6.3 million children born between 2002 and 2011. At current rates around £3bn will be unclaimed and wasted.
The Tory-Lib Dem austerity coalition cancelled the scheme and stopped new CTFs in 2011, so it bears much of the blame: people will find it harder to remember a dead scheme.
But Labour was wrong to try this “too clever” approach to welfare in the first place: the CTFs were an individualised, financialised reform, designed to mimic capitalism rather than build social institutions.
It promotes “co-payments,” where people invest their own money alongside welfare payments. This is a typical “third way” approach which New Labour said was better than simply building old-fashioned welfare institutions.
But time has shown the old way was more durable: where Labour created public institutions, they have lasted, whereas semi-private, overly clever reforms like the CTF don’t grab the public imagination, are too easily cancelled and are very vulnerable to this kind of failure.
Follow Solomon Hughes on Twitter at @SolHughesWriter.
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