A report published yesterday from the NAO said the Department and providers have made "assumptions" about how many people the programme will get back into work, but there is a significant risk that they are over-optimistic.
The NAO says the programme, which was designed to replace all of the welfare schemes, has a number of innovative design features that address weaknesses in previous schemes.
As part of the programme, providers are paid primarily for the results they achieve in supporting people into employment, so what the provider earns is tied to performance. Providers will receive higher rewards for supporting harder-to-help claimant groups into work and are paid partly out of the benefit savings they help to generate. There is more potential for competition between providers.
But the NAO added assumptions about the feasibility of the programme might be "over-optimistic". The NAO's analysis suggests that 26% of the largest group of jobseekers in the programme will get jobs, compared to the department's estimate of 40%. Some contractors in areas of high unemployment may struggle to meet nationally set targets. It is possible that one or more contractors will get into serious financial difficulty during the term of the contracts, the NAO says. The report also points out that no alternatives to the programme were considered as part of the business case, nor was it piloted to test assumptions.
It has so far cost £63 million to terminate existing welfare to work contracts, including contracts with 10 providers that went on to win contracts for the programme. Two former contractors have not yet agreed settlements.
The report details that the IT project to support the programme was not fully functional when the programme was launched. A consequence is that the department will not be able, until March 2012 at the earliest, to carry out automatic checks to confirm that people who find work have stopped claiming benefits. The department needs to ensure that improvements to the IT system are delivered on schedule, says the NAO. In the meantime, there is an increased risk of fraud and error going undetected.
Fewer clients than expected are being referred onto the programme as part of the 'harder-to-help' category. Some have been found to be 'fit for work' and switched into other categories and it is taking the department longer to process assessments and appeals. As a result, some sub-contractors are frustrated at the speed with which clients have been referred to them.
Amyas Morse, head of the National Audit Office, said: "The Department for Work and Pensions has made a significant effort to learn the lessons of previous welfare-to-work programmes. It is too early to judge the success of the Work Programme, which will depend on whether the department can get more people into work than previous programmes.
"The department has set providers stretching performance targets and it needs to ensure they do not cut corners to stay in profit, such as targeting easy-to-reach people, reducing service levels or treating sub-contractors unfairly."
Commenting on the report, a DWP spokesperson said: "The Work Programme is designed to deliver a step change in our support of people who are at risk of long-term unemployment. We welcome the recognition of this in the NAO report.
"We are also pleased that the report recognises the extent of the department's achievement in introducing the Work Programme so quickly. Previous programmes had taken the department four years to introduce – the Work Programme was successfully launched in just over 12 months.
"As part of the Work Programme's design, we had to calculate the levels of performance we expected providers to achieve. The NAO has done its own calculations, reflecting performance achieved under previous programmes. We are confident we have contracted for more positive results.
"The report also sets out the cost to the department of terminating Flexible New Deal contracts, in order to introduce the Work Programme quickly. The Work Programme is designed to improve on the performance of the programmes it replaced (including Flexible New Deal), with groundbreaking new features such as: payment primarily by results; more stretching job outcomes; more freedom for providers; an innovative funding mechanism; different payments for claimants with different needs; and more competition between providers in live running. As the report states, the department expects these innovations to drive improved value for money over the next five years."
