The programme, part of the Welfare Reform Bill launched by prime minister David Cameron yesterday, will use social enterprises, charities and private companies to deliver individual welfare-to-work schemes.
Speaking yesterday, Cameron said this would result in a "sweeping away of the bureaucracy that makes people feel like numbers in a machine".
These organisations would be paid for by results, he said. "We will withhold payment until they get people into work and these people stay in work," Cameron added.
However, the Association of Learning Providers (ALP), whose members include eight of the top 10 Department of Work and Pensions (DWP) providers as well as many potential sub-contractors, said the design of the programme was fraught with risks that may impact significantly on the number of unemployed people who can benefit from it.
Chief among its criticisms are the tightness of the programme’s finances and the trickle-down effect of this on a supply chain that is more vulnerable to financial instability than the large prime contractors holding the contracts with DWP. The ALP was cautious about the "very high" performance expectations of the new programme, that equate to the highest levels that the previous New Deals achieved in more favourable economic conditions.
The ALP added that some prime contractors had withdrawn from bidding in regions when submissions closed last Friday. Feedback from ALP members suggested that a major factor in this was that high-risk contracts would require extensive capitalisation in an economic period of risk aversion by banks and constrained business lending patterns.
"Providers feel that their contract terms are of unprecedentedly high risk, to the extent that the whole programme's operation may itself be in danger – let alone the danger it presents to suppliers," said Graham Hoyle, ALP chief executive.
"With the programme due to begin in the summer, we call on ministers to urgently reconsider the terms of a fundamental tenet of its public service reforms."
The squeeze on the prime contractors may be passed down to the smaller sub-contractors, including many from the voluntary sector, to the point that more providers will drop out of the programme, leaving gaps in provision to which the Government will have to respond quickly and at greater cost to the taxpayer, he added.
Members of the ALP account for nearly £560m of welfare-to-work expenditure, out of a combined spend of over £930m for the top 40 providers.
Stephen Overell, associate director, policy, at The Work Foundation, said the success of the welfare reforms would be wholly determined by whether the economy generates enough jobs at the right skill levels in the right places.
"We broadly support greater efforts to encourage people to find sustainable employment under the Work Programme. However, we fear providers may be tempted to cherry-pick the easier-to-help groups and neglect the longer-term workless. The challenge of decent quality work for people with lower skill levels may make the targets over-ambitious," he said.
