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Critics fear hardest-hit areas may feel little benefit from Work Programme, in which private contractors will find jobs The coalition government will on Friday launch the biggest experiment in public service reform since David Cameron came to power when private contractors take on the task of finding jobs for 500,000 unemployed people annually on the basis of a payments by results system. The employment minister, Chris Grayling, said the model would form the basis for further public service delivery reform covering prison rehabilitation, drug offenders and problem families. The Work Programme, bringing together all existing schemes to help the unemployed, will go live on Friday, with some critics warning there is a danger private sector contractors may go bust as they find they are unable to reach demanding targets set to find work for the unemployed. Private sector contractors under the Work Programme have been incentivised to find work for the unemployed on a sliding scale according to the length of time they stay in work and the unemployment group they come from. It is estimated that 605,000 people would go through the Work Programme in 2011-12, and 565,000 in 2012-13. The maximum fee a provider can attract for an individual client ranges from £4,050 for a jobseeker’s allowance claimant aged 18-24 to £13,120 for an ex-incapacity benefit claimant in the Work Related Activity Group. Government payments to contractors are staged according to length of time the unemployed individual stays in work. For the first three years there will be a small up-front payment – about 10% of the total. Thereafter it’s 100% payment by results. The next payment only comes after someone has been in work for three months if they are from a vulnerable group, or six months if they are a conventional jobseeker. The remainder is paid in instalments that last up to 18 months. If the person drops out of work those payments stop. As a result providers take the financial risk for as long as two years if they are not successful. The system is potentially high risk if the government has miscalculated the difficulty of finding work for the unemployed, especially those hardest to place such as those on incapacity benefit. The Work Foundation claimed that in areas of Britain with the highest unemployment and fewest job vacancies, contractors will struggle. The scheme will be mandatory for all those on jobseeker’s allowance, the employment support allowance and lone parents with children aged over five. In practice the Department for Work and Pensions is expecting contractors to make a return of 10% on investment. Grayling said: “What we have tried to do is create a situation where our interests and the interests of providers are really aligned. They can make shedloads of money by doing the things we would absolutely love them to do.” JSA claimants aged over 25 who have been unemployed for less than a year will continue to be serviced by Job Centre Plus. The scheme is to be funded from future benefit savings. Prime contractors must achieve job entry rates higher than 10% above the government’s estimate of how the client group would have been expected to fare without support from the Work Programme. Grayling has largely left it to employers to design schemes to help the unemployed find work, but Job Centre Plus, the government employment scheme, will continue to oversee the sanctions regime if the unemployed refuse to take reasonable work. The contracts have been let over seven years. Prime contractors, mainly highly capitalised firms such as Serco, have sub-contracted service provision to specialist local organisations, including voluntary sector providers. The minimum performance standard that is being expected is set at a level that is essentially the highest level of performance that the New Deal for Young People and the New Deal for those who are 25-plus ever reached, even at the height of the boom earlier in the 2000s. The Work Foundation said the programme would do little to improve employment opportunities for people living in economically weaker areas. “It will be difficult for private contractors to deliver the programme at a profit in certain parts of Scotland, Wales and London, thus disincentivising activity in these areas.” Shadow work and pensions secretary Liam Byrne called on the government to set out in detail how many people it expected work contractors to get into work in each region. Unemployment Public services policy Work & careers Public finance Patrick Wintour guardian.co.uk