Outsource first, evaluate later

Nick Taylor & Prof Marianna Fotaki | September 1, 2014 | Blog

Welfare to work has become a large industry with representative bodies that promote it and lobby on its behalf. Its biggest players, such as G4S, Serco and A4e, have secured the right to provide a wide range of services to the unemployed on behalf of the government. As of 2011, they are among the 18 ‘prime providers‘ to the coalition’s flagship Work Programme that oversee a supply chain of hundreds of smaller providers. It is estimated that it will cost between £3 billion and £5 billion over a five-year period.

The mass contracting out to these companies has been an extraordinary gamble. It is a case of ‘outsource first, evaluate later’. A 2007 report by the former City businessman Lord Freud recommended the mass privatisation of employment services not on the basis that it would necessarily improve quality or save money but on the basis that it would diversify provision. As a potentially lucrative market, it would not struggle for the attention of companies interested in taking on the contracts. There was little evidence, though, that private employment services would be any more effective at getting people into work than the then existing public provision, a fact the report itself admitted.

The Work Programme aimed to get a very minimum of 5% of claimants referred to it into employment in the first year of its operation and sought to encourage sick and disabled people back into work. Initial results were not promising. Figures from the first 14 months (2011-12) showed that just 3.6% of people referred to in the report got a lasting job, less than what would have been expected had there been no programme at all. The statistics improved for the second year (2012-13), but they still showed very poor results for ‘harder to help’ groups. Moving sick and disabled people into work, something that the now infamous Work Capability Assessment was supposed to facilitate, proved harder than the government expected.

Prime providers of employment services, or ‘primes’ (to distinguish them from their sub-contractors), now receive payments based on job-outcomes, so that they receive money once they get someone into work for a certain number of months, depending on the status of the ‘jobseeker’. So, for example, providers can receive a maximum payment of £5,500 for prison leaversp on Jobseeker’s Allowance (JSA), or £3,810 for those aged 18-24 on JSA.

This payment by results model, targeting ‘hard-outcomes’, is supposed to provide value for money by shifting risk to the providers so that the Department for Work and Pensions (DWP) ‘only pays for success’. However, prime providers have relied heavily on ‘attachment fees’, which are paid simply for taking on people claiming JSA. A total of 1.2 million attachment fee payments were made in the first 26 months of the Work Programme for JSA claimants in comparison to 240,000 outcome payments (pp16-17), which are paid on evidence of a claimant sustaining a job for 3-6 months. This model has meant that the risk of providing services but failing to get claimants into work and so not being paid has been passed to sub-contractors, especially in the public and non-profit sector. Questions remain over what the Department for Work and Pensions will do after attachment fees expire (they are paid for a maximum of three years) if contractors struggle financially.

‘Primes’ also extoll the benefits of their services for achieving ‘soft outcomes’, stressing the value of intangible ‘goods’ resulting from bringing about changes in their ‘clients’’ motivation and skills. This has led to increasingly refined attempts to measure the outcomes of ‘employability skill development’, through looking at such categories as personal and interpersonal skills, ‘self-management’, initiative and ‘delivery’.

The design and delivery of services for unemployed people is left largely to the private provider under what is called a ‘black box’ approach. The DWP has a hands-off stance and providers are supposed to design and deliver ‘personalised support’ as they see fit. Reports so far indicate that, rather than tailored services, unemployed people are receiving basic online support which sees them re-drafting their CV over and over and group sessions where they are told that their greatest barrier to work is not being positive enough.

Much of the official evaluation of welfare reform so far has concentrated on how well the contracting model has worked for providers, and whether it is providing value for money to the taxpayer. There has been little consideration of what it is like for an unemployed person to be told that the reason you don’t have a job is your lack of positivity. Or to be told that you must work in a retail position for more than 30 hours a week without any pay to fulfil the terms of your placement. Or to realise that, as a lone parent, the increasing conditionality of the Work Programme doesn’t take into account your childcare needs. Neither is there attention paid to what kind of work people must undertake, whether it offers stability and a decent income or the insecurity of a ‘zero-hours’ contract.

Growing realisation of the devastating consequences of benefit sanctions (i.e. where benefits are withdrawn as a punishment for some infringement), such as increased referrals to food banks, has led to media outcry. But there is little indication yet that the DWP is proposing to change or repeal the even harsher sanctions measures it introduced in October 2012, whereby claimants can be sanctioned for up to 156 weeks, or 3 years, where the maximum was previously 26 weeks. Public scrutiny of the services private companies are providing is also difficult, not least because they are relatively immune to the Freedom of Information Act, which makes securing change even more difficult.

There is every indication that welfare reform has been based on an ‘outsource first, evaluate later’ approach. A similar approach would seem to extend to Iain Duncan-Smith’s Universal Credit reforms. The pace and nature of change is so extreme that many questions are left unanswered. Sometimes these are broad and straightforward moral questions: is it acceptable for unemployed people to be forced, under threat of sanction, to work without pay? Sometimes we need to keep pace with further changes that are already being proposed, so we can get ahead and ask specific questions like: is it acceptable that hardship payments will be converted into loans, so that people who have been sanctioned will have to repay them through reductions in future benefits?

The attempt to create a ‘quasi market’ in employment services should be seen in greater perspective as part of the coalition’s plan to roll back the state permanently and force austerity on some of the most vulnerable in society. To counter this, we need to look first at what reform has meant for unemployed people, and not simply rely on the rhetoric of value for money.

Commentary by Marianna Fotaki: could there be lessons for the NHS?

The lessons that can be drawn from the implementation of the Work Programme provide some warnings for the future of service delivery in the NHS.

  • First, the absence of evidence to support market forces in the finding of work for the unemployed compares with empirical evidence for market failure in health care – in both instances, the governments have either disregarded the role of evidence or chosen to rely on spurious evidence to support their ideological position.
  • Second, there is good reason to think that dominant players such as Serco or G4S, which are now increasingly involved in the provision of health services, are ill-suited for delivering high quality services efficiently. In fact, their involvement in health care and other public services to date has led to them being investigated for fraud: Serco for instance has falsified records on its GP out-of-hours contract in Cornwall.
  • Third, there are potentially undesirable effects on equity of access, when users of health care services are expected to act as consumers in the market place.

In terms of equity of access: there is a danger that the replication of the business logic of competition, choice and outsourcing of services to commercial companies will exacerbate yet further the pre-existing inequalities by making it even harder for those groups whose education level or income makes them less likely to shop around in order to access services. Inequality is one of the main consequences of markets that public universal provision of health services aims to address. This will come on top of the potential erosion of free and universal provision of services according to need – the founding principle of the NHS –via introducing co-payments for services, an idea which is now being articulated ever more loudly, and could be the first step towards breaking the taboo of paying for health care at the point of use.

In terms of quality of care: certain parallels with the failed promises of improved services for the unemployed following the introduction of the market might apply for public health services too. Provision of cheap and basic services rather than high quality care is more likely as the example of outsourcing the Work Programme to the private sector illustrates. Outcomes of care are likely to improve as a result of the additional investment rather than competition per se. The team of researchers evaluating the evidence surrounding the introduction of payment by results in all NHS hospitals in one region of England, found that a clinically significant reduction in mortality for certain conditions (pneumonia) were linked to a greater investment by hospitals in quality-improvement activities along with shifts in organizational culture when compared with equivalent US programmes.

Penalising users for their choices: As in the Work Programme, the introduction of market logic to revitalise bureaucratic structures and the attempt to create a consumer citizen capable of driving improvements in health and social care, imply that the role of the government is to merely inform the public of the available options while how they respond is up to them with the consequent risk of sanctions if they choose wrongly. In addition to offering a limited model of autonomy and disadvantaging users who are less able or less willing to exercise choices, this also opens up the possibility of withholding treatments from patients if they choose unhealthy life styles.



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About the authors

N Taylor

Nick Taylor

Nick Taylor is a PhD candidate in the Department of Politics and International Studies at the University of Warwick. His research examines the relationship between the history of economic thought and the history of relief and welfare in Britain from the late-19th century onwards, specifically exploring the relationship between moral and economic reasoning.See all posts by Nick Taylor
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Prof Marianna Fotaki

Marianna Fotaki is Full Professor of Business Ethics at University of Warwick Business School working on the marketization of health policy, inequalities in organizations and society, solidarity responses to refugee and forced migrants arrivals as well as whistleblowing. With Professor Kenny and Dr Wim Vandekerckhove, she has published The Whistleblowing Guide: Speak‐up Arrangements, Challenges, and Best‐Practices, Wiley (2019).See all posts by Prof Marianna Fotaki