Deloitte to sell stake in government Work Programme
- 5 November 2013
- From the section Business
A key investor is selling its stake in the government's flagship Work Programme.
Deloitte, the corporate finance and consultancy firm, owns a 50% share in Ingeus, one of the private companies operating the scheme.
Deloitte's decision to sell its share has prompted claims the government has failed to create a viable market in the welfare-to-work industry.
Employment Minister Esther McVey said she saw the move as a positive sign.
Ms McVey denied companies were losing confidence in the Work Programme, adding Deloitte was exiting the market while its business was performing well.
The Work Programme has contracted 18 prime provider companies to help the long-term unemployed find work.
Claimants spend a maximum of two years on the scheme. Companies receive a fee with each referral and a further, much larger, payment when someone finds and stays in a job.
Richard Johnson, a former industry insider and parliamentary consultant to the Work and Pensions Committee, said he was not surprised Deloitte was looking to leave the market at this point.
According to Mr Johnson, some of the companies that bid for contracts offered discounts of 30% and more on the Department for Work and Pensions' (DWP) suggested price.
Those discounts take effect next financial year at the same time as the government is withdrawing up-front referral fees, leaving companies paid by results alone.
"Deloitte joined Ingeus in order to bid for and secure these contracts. And if I were Deloitte I would see this as a very good time to exit that market," he told the BBC.
"I would expect them to understand precisely what the financial implications are of those discounts that start to kick in next year.
"At this price, these contracts are not viable."
Another analyst, Alastair Grimes from the consultancy Rocket Science, said the sale of the shares raised the question of how effective the DWP had been at creating a functioning market in welfare-to-work.
"I'm not aware of people who are making money out of the Work Programme," he said.
"At one level you can say, 'Well that's fine, they're not supposed to be making money out of it.' On the other hand, if you want private-sector investors to stay in there, there's got to be some return on their capital and it's difficult to see in the current climate where that's going to come from over the long term."
The BBC understands that Deloitte went into closed negotiations with Serco during the summer. No sale was agreed but it is believed there are now a handful of potential bidders looking at the purchase, some from outside the UK industry.
Deloitte and Serco declined to comment.
Employment Minister Esther McVey said that the government had created "a marketplace that never existed before".
"We have brought people into this market place," she said.
Ms McVey added that she did not agree Deloitte's decision should be seen in a negative light.
"Usually when a business sells its business it would be at the peak rather than at the bottom - especially a company like Deloitte," she said.
You can hear more on this story on File on 4, BBC Radio 4, Tuesday 5 November at 20:00 GMT.