Iain Duncan Smith’s pledge to “make work pay” is a laudable aim that no-one would argue with. The reality, however, has been somewhat more difficult, and the Times (£) reports today that Duncan Smith is setting up a review into the Work Programme, after the £5bn programme failed to get enough long-term sick and disabled people into work.

Under the scheme, the Department for Work and Pensions (DWP) pays private companies to help get the long-term unemployed into sustainable jobs. Launched in June 2011, it replaced virtually all welfare-to-work programmes run by the department and was expected to help up to 3.3 million people back into work over five years. The contracts were “payment by results”, which transfers the financial risk away from government and onto providers.

The downside of this is that, according to the Times report, the numbers are not adding up for the 18 prime contractors involved in the scheme. Duncan Smith originally told the companies that around 30 per cent of referrals would be people claiming incapacity benefit or its replacement, employment support allowance. Companies stand to gain up to £13,800 for each person in this category who they place in a job. However, in the nine months since the programme launched, just seven per cent have actually been in this category, while the rest have been on jobseeker’s allowance. Finding employment for people on jobseeker’s allowance is worth only £3,800 to the companies. Some companies are losing hundreds of thousands of pounds because of this miscalculation.

So why isn’t it working? The Times piece cites poor IT systems, the failure of Jobcentres to refer people, and appeals against medical assessments. But these administrative issues are not the root cause; indeed, serious doubts were raised months ago about whether targets would be met. There is a very simple reason for this: if there aren’t enough vacancies to fill, the whole plan falls apart. The scheme was designed at a time when DWP expected the labour market to follow the Office for Budget Responsibility’s optimistic growth forecasts. (Needless to say, it didn’t).

The numbers simply don’t add up. As our economics editor David Blanchflower wrote in June 2011, as the scheme launched:

They promise that the programme will give 2.4 million unemployed people help to find jobs over the next five years, which seems unlikely, given that there are so few jobs available. At present, there are 2.43 million people who are unemployed and a further 2.4 million who are out of the labour force - those who are neither employed nor unemployed but want a job. The Office for National Statistics reported that, on average, there were only 469,000 vacancies available from February to April, which implies only one vacancy for every ten jobseekers. The number of jobseekers per vacancy is likely to be much higher in areas of high unemployment. There remains no evidence that the private sector will deliver the large numbers of jobs the coalition is hoping for.

The employment crisis has hardly receded since then. As more and more people face having their benefits stripped away, this highlights the fact that in this climate, there are frequently few other options.

Incidentally, the Labour government’s Pathway to Work plan was a pilot scheme which used the private sector to help incapacity benefit claimants back into work. Then, too, they failed to meet their performance targets, and were often worse than the Jobcentre. Clearly, the lessons were not learnt, as several organisations named as serious underperformers won contracts under the Work Programme.

It is no surprise that the programme is floundering; solutions, however, are harder to identify.

