A new government programme designed to cut the number of benefit claimants will place the financial burden on further education colleges
Colleges and Training Providers are by now used to getting paid by results. Their funding depends in part on students/learners gaining a qualification at the end of their course, and training schemes for unemployed people can pay as little as 40% of money upfront.
Later this year, though, the stakes for colleges and training providers will become even higher, as the first learners enrol for a new programme designed to reduce the numbers claiming jobseekers' allowance and other benefits.
Under the Work Programme, which will replace Flexible New Deal and other welfare-to-work schemes this summer, just 10% of money will be paid upfront. As part of a growing trend requiring training providers to find jobs for learners as well as teach them skills, the rest will be staggered over the next 18 months - and then only if the learners remain in employment. Within three years, all payments will be performance-related.
Given the economic climate and rising unemployment, you might think that colleges would be reluctant to take the risk of receiving only a fraction of what they hoped for because individuals do not find jobs or quit after a few months.
But, instead, there is disappointment in the sector that just one college - Newcastle - made it on to the shortlist of prime contractors. Others, such as Carlisle College, are hoping to work as subcontractors for the mainly private firms selected by the Department for Work and Pensions (DWP) to bid for contracts in each region.
Newcastle's involvement in the Work Programme is based around Intraining, the college's private training arm set up three years ago.
Last year, about 40,000 learners participated in welfare-to-work programmes at Intraining's 60 centres across England. Its managing director, Phil Bonell, is upbeat about the new programme and optimistic it can achieve results by giving learners personal support before and after they find work.
The emphasis on payment by results, says Bonell, may come as a shock to some colleges, but reflects a trend in work-based learning over recent years. "For certain sectors such as FE, being paid in this way will be new if they've not been involved with the DWP in the past."
The Work Programme is being funded from savings the government hopes to make in the overall welfare bill. Claimants who refuse to take part could lose their benefits, with sanctions likely to be stepped up once job seekers' allowance and other income-related benefits are replaced by universal credit after 2013.
Jacq Longrigg, employment services manager at Carlisle College, says finding work for learners will be a challenge even though the jobs picture in Cumbria is better than in other parts of the country. "We have developed relationships with job centres and employers and feel quite confident," she adds.
As a college, Carlisle recognises that it is increasingly being judged on "hard economic outcomes", but sees these programmes as an important source of funds. "We have to generate income to survive," says Longrigg.
Carlisle is lined-up as a "job broker" by G4S, one of 35 prime contractors that will submit bids to the DWP over the coming months. Sean Williams, managing director of G4S's welfare-to-work team, says colleges "are very much part of the picture".
Those working for G4S as job brokers, by offering training and help finding work, will be paid by results in the same way as the prime contractor. But providers that offer specific vocational training and other advice may be paid upfront by G4S.
Funding for the Work Programme is the subject of an inquiry by the House of Commons work and pensions select committee. Strong criticism has come from the Association of Learning Providers, which warns that some trainers will be dissuaded from working as subcontractors.
Graham Hoyle, the ALP's chief executive, says: "There is anxiety that a programme that bears considerable financial risk for the prime contractor may also transfer an inappropriate amount of that risk down the supply chain."
Only organisations with a turnover of £20m were considered as prime contractors. A further eight college-led bids failed to make the DWP shortlist, including a consortium of 27 colleges in south-west England led by Petroc. David Dodd, the college's principal, says it was disappointed by the outcome and noted that "none of the college groups new to this type of scheme were awarded contracts".
Teresa Frith, senior skills policy manager at the Association of Colleges, says there is a "nervousness" in the sector, with many colleges waiting to see how things work out. But colleges generally are in a stronger financial position than other learning providers and could use alternative income to cover short-term costs.
Success will depend on the difficulties colleges and others face in finding jobs for learners. Payment by results, says Frith, is only fair if the goals are realistic and achievable. "The results have to be in the gift of the provider," she says.
How it will work
Under the Work Programme, providers receive an attachment fee for each learner, plus a lump sum when the individual completes six months' work. Further payments are made every four weeks if the person remains in work.
For 18- to 24-year-olds on job seekers' allowance, providers will initially receive £400, followed by £1,200 when the person has been in work for 26 weeks, and up to13 'sustainment' payments of £170. For over-25s on JSA, 'sustainment' payments are worth £215.
By 2014, the attachment fee will be phased out so that all payments depend on job outcomes. A maximum of £14,000 will be available for people on incapacity benefit but, for those receiving JSA, payments will be about £3,000-£4,000 per learner.
