James Purnell, welfare secretary, is pressing ahead with a tight timetable to roll out the £1bn-plus flagship programme for the long-term unemployed even though the planned contracts will have to be rewritten significantly.
The decision to start the so-called Flexible New Deal in October came as a committee of MPs warned that underfunding the scheme could bankrupt providers and leave the most vulnerable without support during the recession.
Mr Purnell recently paused the bidding for the FND and asked providers to resubmit bids to take account of sharply rising unemployment.
Revised invitations to tender offered providers more money upfront for attempting to find people jobs in the rapidly deteriorating employment market. Officials raised the estimated numbers eligible for the scheme from 100,000 to up to 300,000, suggesting the cost of the scheme could double or triple, at least in its early years.
Mr Purnell said: “We are still on track for implementation in October and the response to the approach we asked bidders to take is very positive, including those who had previously made the shortlist but did not bid.”
But providers privately fear it may be difficult to get the programme running by October, particularly because of the extra capacity required to deal with three times the expected volume of jobseekers.
A work and pensions committee investigation, to be published on Thursday, expresses deep concern about the financing of the scheme, given the added challenges of recession.
Without a proportionate increase in the budget “there is a real danger that providers will not be able to cope”, said Terry Rooney, the committee’s chairman.
The report calls on ministers to spell out “as a matter of urgency” the amount of cash that will need to be pumped into the scheme to ensure the contracts are still “viable”.
“The consequences of underestimating programme costs for providers, claimants and subsequently the public purse would be too great for this issue to be overlooked,” the report warned.
A shortfall in funds could force providers into bankruptcy. There are real fears that “the budget will not stretch” to accommodate the additional customers, the committee said.
It also backed calls for an independent ombudsman to be set up to monitor and review the services.
That would provide a complaints system for customers but also answer continued fears that smaller, more flexible and possibly more effective providers will be “squeezed out” by the big companies that will hold the prime contracts.
The committee is unconvinced that the current arrangements will prevent providers from “cream skimming” easy cases to get them into work, while “parking” cases who are considered harder to help. It expressed “disappointment” that no specific mechanisms had been put in place to prevent this.
Teresa May, shadow welfare secretary, called on Mr Purnell to be “upfront about the problems” with FND and explain how he plans to save it from being “derailed by the recession”.
