Is Chris Grayling giving the New Deal a fair deal?

Published: 18th Nov 2010

Fleet Street's finest at the FT have been doing an admirable job of unpacking the Employment Minister's claims that the Flexible New Deal has cost £31,284 per job found today. 

The Minister, Chris Grayling, said figures for the first 11 months of the Flexible New Deal up to August this year show that it had placed 16,238 people in work for 13 weeks at a cost of £508m, so had cost "massive amounts of money" while delivering "very little." 

However, the FT took the trouble to canvas different views and unearthed controversy. They quote Ian Mulheirn, director of the Social Market Foundation, telling them that the import of the figures was "unclear" and might actually suggest that the Government's new programme, which is based on similar principles, will face similar difficulties, a point that Alex Barker has developed on their blog

Meanwhile, in a touching public-private partnership, Douglas Alexander, Labour's voice on Work and Pensions, the trade association for welfare-to-work providers, and specialist think tank Inclusion all criticised Mr Grayling's use of figures. 

So where did they come from? Full Fact chased down the original figures, which come from the Department for Work and Pensions' Delivery Directorate Performance Report. The accompanying information note contains quite a long list of caveats and context, the broadest of which simply states in fluent civil-servese that until the programme settles down the figures "can be hard to interpret." 

Mr Grayling is right to say that only 16,238 people have been found jobs. In fact, the sum of the monthly total given in the spreadsheet (which are rounded to the nearest ten) is 16,240. Given a cost of £508m, £31,284 per head is correct. 

But welfare to work is a classic spend to save initiative. We spend money getting people into jobs so we do not have to spend it on benefits, and so that the people involved become net contributors to the Treasury. So how much should we spend? 

According to a study of 42 welfare to work programmes conducted at the beginning of the New Deal in 1997 the range is between £1,000 and £10,000 per head—one third of the amount Mr Grayling is criticising. The benefit to the taxpayer, on average, was £3,700. It is unlikely that that is directly applicable to the Flexible New Deal (FND), but the scale of the difference is remarkable. 

So remarkable, in fact, that you might question whether the FND contractors can be so much less effective than those in the 42 other programmes. In fact, you can question both the total cost and the numbers moved into work. 

You would expect a lag with welfare to work programmes. In the first three months of FND, nobody got a job through it. In the second three months, only 1,000 people did. In July and August that number has been around 4,000 each month. 

Even if you assume that there were no start up costs for the programme (so even if you assume the marginal cost of a month is the same as the average cost of a month so far) one more month like August would reduce the cost per head by about £4,000 and another 11 months would roughly halve it. We are unlikely to see Mr Grayling making the same claim in early 2011 when the Work Programme begins. 

Besides, one of Mr Grayling's biggest criticisms of the FND is that the costs are front-loaded. The FT reports that providers have been given £477m in up front fees, out of the £508m in total costs so far. So the mere fact that the average cost per month will be falling from here on in ensures that the cost per positive outcome will fall too. 

Finally, as pointed out by Neil O'Brien, the Director of Policy Exchange, points out in Telegraph blogs today, the ratio of people who have started the programme to people who have got into a job has improved every month since the programme began. 

There are good grounds for speculating that the FND would have come good over its intended span, notwithstanding the difficult economic circumstances for finding people jobs. However, it is important to note that all the figures above relate to people entering short span employment, as it is too early to infer any trend about those entering sustained employment, and sustained employment is the ultimately goal of welfare to work. 

What Mr Grayling said was a fact. But that fact has a short shelf life. There is every chance that the final figures when the programme shuts down early next year will paint a different picture. Correspondingly, there is little basis for drawing conclusions about the efficacy of the Flexible New Deal at the moment. Anyway, with the similarities between the FND and the Work Programme, if the Employment Minister believes that those figures will not improve, he has more than the past to worry about.

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