Incapacity benefit claimants began to be "invited" in for tough new work-capability assessments on Monday – an invitation they can't refuse. In two pilot schemes 70% of claimants were judged fit for work, with a third put straight on to jobseeker's allowance – leaving just 30% too frail to be chivvied further.

Last week the government announced who had won contracts for the work programme: there was shock when, out of 40 contracts worth between £3bn and £5bn, only two went to not-for-profit groups. Not so much "big society" as big Serco. The biggest winner – and a surprise – was Ingeus Deloitte, which won seven huge contracts amid acid observation that its CEO was a former director at the Department for Work and Pensions. Concern was expressed that Ingeus had underbid more experienced providers: price was a clinching factor in the official scoring system, whereas bizarrely previous performance was not scored at all.

The greatly disappointed voluntary sector will be relegated to sub-contracting. The big companies will hand down their difficult cases, such as addicts, ex-prisoners or the mentally ill – creaming 20%-30% off the top in "management fees". The Glasgow-based Wise Group, whose board I was on until recently, is a leading not-for-profit organisation, and was shocked to win no contract and see Scotland go to Ingeus Deloitte despite a lower success rate. Wise is the sixth most successful in the UK for the flexible new deal and top for finding people work in the new deal for the disabled. It's about as big society as they come. Why didn't it win? Possibly because it wouldn't and couldn't discount too steeply: the voluntary sector can't gamble and borrow as large companies can.

Among the winners is A4E (Action for Employment) – hardly surprising as its founder, Emma Harrison CBE, was named by David Cameron as his workless families tsar. As the Observer revealed, she and her husband have a joint income of some £1.4m from their welfare-to-work empire. While any public sector chief executive earning over the prime minister's £140,000 is ritually slaughtered by Eric Pickles, not a word is said about private sector chiefs making a killing out of public contracts. Serco's CEO had an 18% rise to £1.86m.

Cameron has announced his intention to outsource not just the NHS but virtually the entire public sector to "any willing provider" – with little concern about profits made from the public purse. The City financier Lord Freud, a Labour adviser turned Tory minister for welfare reform, made plain last week quite how far this will go. Announcing the-welfare to-work contracts, he said: "This is the ultimate blueprint for delivering a wide range of government services – and one that governments around the world will be taking a look at."

Let's hope they look hard at the evidence first. Last year the Commons public accounts committee reported on Labour's Pathways to Work scheme for getting incapacity benefit (IB) claimants back to work. The verdict was pretty damning. Not only did contracted companies miss their targets by miles – but the DWP's own Jobcentre Plus outscored them easily. The committee summoned two leading companies – A4E and Reed in Partnership – to give evidence. Sadly its findings seem to have been ignored as the government ploughs ahead with its near-identical scheme, only stopping to re-tweak the contracts.

Steve Marsland of A4E started by claiming his company had got 42% of IB claimants into work. The committee chair, Margaret Hodge, probed and found he meant 42% of those who volunteered for the programme. Out of the mandatory participants, how many? 15% against a target of 32% – though prodded again by Tory MPs Richard Bacon and Jo Johnson, his results turned out to be even lower: Surrey and Sussex achieved just 13% against an agreed target of 50%. With targets of 31%, A4E hit 12% in south-east Wales, 14% in West Yorkshire, 13% in north and mid Wales, and 16% in Devon and Cornwall. In south London, it was down to 9%. Reed's results were much the same.

Even worse emerged: a quarter of these "successes" fell out of their jobs before 13 weeks. What's more, that included the voluntary group, whereas the mandatory clients alone would have had a much higher drop-out rate. Asked about profit margins, on A4E's estimated £500m of government contracts, Marsland replied: "Last year we made just over 5% profit." Sharp-eyed Johnson spotted some evasiveness: before tax – the standard expression of profits – it was "about 9%".

The committee's report is remarkably trenchant: " The performance by the mainly private-sector providers was universally poor … £94m was spent on employment support that did not deliver additional jobs … Private providers have seriously underperformed against their contracts and their success rates are worse than Jobcentre Plus even though private contractors work in easier areas." Despite that, the clamour has begun for jobcentres to be outsourced to private companies. That would put a stop to embarrassing comparisons between the two sectors.

When Sir Leigh Lewis, permanent secretary at the DWP, appeared before the committee, Margaret Hodge said: "I cannot understand on both value for money and effectiveness for the client group, why we are moving to a greater dependence on private providers – given that we like to have evidence-based policy." The mandarin was left floundering with nothing to say but the truth. First, Jobcentre Plus "is a very effective and able organisation so it is quite a tough test [for private companies] to perform as well". Second, it's all ideological: "Ultimately these are political judgements and not ones for civil servants."

The companies claim their results have improved since then: even so this evidence makes the work programme's target to take a million people off IB wildly ambitious. The new contracts are tougher, heavily backloaded so they only pay out once claimants are found jobs.

So why do the companies want this business at a time of grim employment prospects? For two good business reasons: in previous contracts when they ran out of money they ganged together, demanded more – and got it. The government had no option. Not one company has ever been terminated for missing its targets. So price is flexible. The other reason is that these contracts are small beer, loss-leaders for large companies with their eye on massively lucrative future contracts in the great Cameron outsourcing bonanza.

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