Promoting social inclusion in the labour market



NAO predicts rocky times for Work Programme

The National Audit Office (NAO) has predicted in its report the Introduction of the Work Programme (24 January 2012) that job outcomes for Jobseeker’s Allowance over-25 claimants will be 26% rather than DWP’s assumption of 40%.

NAO has based this on Flexible New Deal performance and uprated it to take account of Work Programme features. Inclusion has said before that we do not think this is a sufficiently robust way of predicting Work Programme performance.

However, the wider economy and the state of the labour market will have some impact on performance and the finances of prime contractors. What is too early to say is the scale of the impact and prime providers’ ability to cope with both increased volumes and reduced job outcomes.

Lower economic growth means fewer jobs in the economy, which means more people not in work, more people going onto government programmes, and programmes having a tougher challenge in getting people back into work.

Our analysis shows there is a strong historical relationship between changes in overall job entries for claimants and changes in GDP. However, an objective of the Work Programme is to break this historical link and increase the number of long-term unemployed people getting jobs in a highly competitive jobs market.

Back in spring 2011, when the Department for Work and Pensions (DWP) signed its contracts for the Work Programme, prospects for growth were a lot better than they are now. DWP included in those contracts minimum performance levels and indicative volumes that were based both on the forecasts of growth at the time, and the historic performance of programmes.

The Office for Budget Responsibility’s (OBR’s) November 2011 forecast estimates that there’ll be 400,000 fewer jobs over the period from 2013 to 2015 than they had predicted in their November 2010 forecast.

The OBR’s forecasts for claimant unemployment are up to 440,000 higher than its November 2010 forecast.

So what does this mean for the Work Programme?

Higher claimant count numbers lead to expected rises in Work Programme referrals – at least in the Jobseeker’s Allowance groups – which will lead to higher payments to primes for ‘attachments’ (the payment made when individuals start the Work Programme).

It could also lead to fewer job outcome and sustainment payments. We estimate that there could be 90,000 fewer Work Programme job entries over five years than would have been expected based on the OBR November 2010 forecast.

Inclusion’s analysis has shown that a 1% annual change in GDP results in a change in job entry rates of just under 10%. So for a programme with a 40% job entry rate, a 1% reduction in GDP reduces the job entry rate to 36%. Independent forecasts for growth by the end of 2012 have dropped 1.7 percentage points in a year, so if the 1:10 relationship held, a 40% job entry rate estimated at bidding time would fall to 33%.

These estimates come from our analysis of the relationship between Jobcentre Plus’s published job outcomes 2006-10 and economic growth (GDP).

Equally troubling for providers is that the forecast for economic recovery is pushed back – with the return to trend growth now not coming until 2014. So, if the forecasts are right, primes would have to support more participants, for longer, before job outcome payments come in.

So the challenge is set – primes will have to demonstrate that they can break the link with past performance and there is some way to go yet before this question can be answered.

Download the NAO's report, the Introduction of the Work Programme.

Paul Bivand
20 January 2012