Private sector and voluntary providers will be paid as much as £13,720 for each former incapacity benefit claimant they keep in work for two years. The plan is the most sophisticated payment-by-results scheme introduced into the public sector by the coalition government. The announcement forms the centrepiece of the "work programme" – the welfare-to-work plan being overseen by the work minister, Chris Grayling – and heralds the spread of payment-by-results systems across the public sector.
Ministers plan to extend reward payments to children's services, former prisoners, health services and drug rehabilitation. Oliver Letwin, the Cabinet Office minister, called it "a switch from focusing on process to incentivising outcomes".
Job providers contracted by the Department for Work and Pensions will be paid a maximum of £2,410 if they can keep a jobseeker's allowance claimant in work for 43 consecutive weeks. An initial payment of £1,200 will be given for contracting to take on an unemployed 18- to 24-year- old, with a fee paid if the person is kept in work for 26 weeks and weekly payments thereafter to a maximum of 43 weeks.
Different rates have been set for different groups of unemployed people according to the difficulty of maintaining sustained work. After an initial attachment fee of £400 to £600, no payment will be made until after 26 weeks of work in the case of JSA claimants or 13 weeks with those that have had an incapacity. There are 35 named prime contractors with a potential to put three million people through welfare-to-work programmes over the next five years.
The system presents challenges for voluntary groups with little cash flow to tide them over until payments are made by the state. Letwin urged banks to provide funding, adding: "In designing these payment-by-results schemes we are trying to think through what kind of cash flow support could be given without compromising the incentives." He said small upfront payments would help social enterprises "stand a chance of financing themselves with a small cost base".
In the case of prisoners, payments will be made, initially in a small number of pilot schemes, according to the number of times an offender is reconvicted within 12 months of leaving prison. Incentives will increase as reoffending drops.