Making the Work Programme work for ESA claimants

This report sets out the financial consequences of lower-than-expected performance for Employment and Support Allowance claimants on the Work Programme, and proposals for how the funding model can be reformed for new participants.

Key findings include:

  • Overall Government funding for ESA claimants on the Work Programme is set to be less than half the level that the Government intended when the programme was designed. Funding will be £380 million lower than planned, at around £350 million between 2011 and 2019 instead of £730 million.
  • Targets are being missed for a combination of reasons: a weaker than expected economy; low referrals to the programme, which makes it harder for specialist organisations to get involved; changes to the rules on who is referred (with more people being referred who are further from work); variations in performance between providers; and that the performance expectations themselves may have been set too high (with our analysis suggesting that these may have been over-estimated by as much as 40 per cent).
  • Per participant, the Government is set to spend around £690 on supporting each sick and disabled participant for two years, against an original profile estimated at £1,170. However, from 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.
  • These large cuts in funding are primarily because the Work Programme is a ‘payment by results’ programme – so if the results are not achieved, funding falls. This in turn risks a vicious circle of lower funding leading to lower performance, leading to still lower funding, which means that the funding model has been set up to fail – with lower outcome payments, and therefore lower funding overall, hard-wired into the contracts.
  • In the event, there is some 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. However, this is unlikely to be sustainable in the longer term.