A4e: a scandal so big it could be seen from 2008

25 February 2012: Emma Harrison’s double resignation has finally focused media attention on the privatisation of job placement, argues Alex Nunns.

A4e, a for-profit company entirely dependent for its business on £180 million of government contracts under which it is supposed to help unemployed people get in to work (something which used to be the job of the State), last year paid Harrison £8.6 million in dividends - money directly siphoned from tax-payers.

But this cosy arrangement has now gone catastrophically wrong with the arrest of four A4e employees over claims of fraud. It has emerged that, among other allegations, A4e has had to pay back public funds on five occasions after government investigations found irregularities, and that the company made job seekers work in its offices for at least a month for no pay.

Margaret Hodge for Labour has called for all of A4e’s contracts to be suspended until the allegations of fraud have been investigated, but the government has so far resisted, and for good reason – under New Labour and the Coalition, A4e has practically made itself into an arm of the State. In five regions of the UK it is in charge of the government’s Work Programme, responsible for selecting providers to do the work of job placement and channelling public money to them, taking a huge fee along the way. Some third sector providers (charities, non-profits, community initiatives etc) that work under A4e in these regions have complained that job seekers have not been sent their way by the company and that they were merely window-dressing for A4e’s contract bid. In other areas of the country A4e wears a different hat, working as a provider itself.

This is what the patchwork privatisation of the welfare system looks like. A dominant player gets itself into an indispensible position and (allegedly) abuses the system, so that even when it is being investigated for fraud and is under so much public pressure that its celebrity chairman has to resign, the State appears powerless to act.

This is all the more shocking because the activities of A4e should come as no surprise – exactly the same scenario played out in Australia under the Howard government when it implemented the original scheme which the Tories have explicitly copied.

The problem, common also to other faux-market reforms of public services, is that there is (and can be) no functional market because there are no proper customers (the unemployed) and only one source of money – the tax payer. What emerges instead is a form of contractual clientelism.

In 2008 Red Pepper published an article called 2014: A Tory dystopia. The piece was written from an imaginary future but was based on the policy papers developed and published by the Tories in opposition – no one can say they weren’t warned. We are still two years from the imagined date of the article, but the piece bears re-reading (even if I did write it myself) because so much of it has already come true. (This speaks volumes about the Lib Dem’s “moderating” influence on the Tories.)

And what do you know, the piece contained a section on the Tories’ plans for job placement privatisation and the likelihood that it would end in fraud. The article predicts the emergence of dominant players with huge power to abuse the system, the sidelining of third sector organisation, and points to New Labours culpability. Here is the section, written back in 2008, but as if it was 2014:

As well as squeezing the benefits system, the Conservatives have privatised its job placement function. Jobcentres now grade potential benefit claimants according to their capability for different kinds of work and refer them to a private company to find a job. This fundamental reshaping of the welfare system built on New Labour's reforms - Tory ministers defend their policies by saying they are only continuing James Purnell's work.

The 'payment-by-results' system, under which companies' funding depends on getting people into jobs and keeping them there, is meant to provide the state with the levers it needs to control the process. But it doesn't work like that. The Tory plans were largely based on the Australian system introduced by the Howard government, but in that country the profit motive produced perverse outcomes and fraudulent behaviour. There was no real market, because the 'customers' (unemployed people) didn't pay for the service and couldn't choose to switch between companies. Although private providers were paid by results in Australia as in the Tory scheme, there was minimal competition once a few companies became dominant. To compensate for the failure of the market, the Australian government was forced to tighten regulation and central control - undermining the original aim of cutting bureaucracy and costs.

The Conservatives chose to ignore this evidence, and promptly repeated the Australian experience. They also faced an outcry from the voluntary sector, which had been promised a key role delivering job placement services but didn't have the capital necessary to win many contracts. The sector belatedly realised that its involvement had been used as PR cover for privatisation.

When the current scandal could be seen from as far back as 2008, we should say 'I told you so' as loudly as possible.