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Welfare to work scheme co-ordinating firm goes bankrupt

Jobless support company Eco Actif closes after being denied loans by banks which said social policy was risky investment

The government's controversial welfare to work initiative has suffered another blow after it emerged that a social enterprise firm hired to get the long-term jobless into employment has gone into liquidation, claiming banks refused to lend it money to stay afloat because they considered the work programme to be too financially risky. Eco Actif, a community interest company based in Sutton, Surrey, closed suddenly on Friday morning. It provided employment support for around 500 people in the south-east of London, operating as a subcontractor in a regional supply chain headed by the welfare to work company A4e.

Its chief executive, Amanda Palmer-Roye, said Eco-Actif had performed well in getting people into work and had a £1m order book but had been unable to raise the capital to sustain itself under the government's payment by results system, under which firms must wait 18 months between delivery and payment. In a letter to staff, Palmer-Roye said Eco Actif had approached both conventional banks and social finance providers for backing but had been refused on the grounds that the work programme was too high-risk and that "prime contractors are not passing sufficient funds to the ultimate delivery organisations to make sufficient surplus to finance any loan". The letter added that its association with A4E had been a matter of great concern to potential investors. A4e has been in the headlines in recent months over allegations of fraud, and because of the furore over the £8.6m dividend payment made to its former chair, Emma Harrison.

Palmer-Roye has in the past been an enthusiastic champion of the coalition's approach to welfare. She supported the Centre for Social Justice thinktank set up by the work and pensions minister, Iain Duncan Smith. Eco Actif was preparing to for a visit next week by Duncan Smith's special advisor, Philippa Stroud. But Palmer-Roye told the Guardian she had become disillusioned by ministers' refusals to listen to her complaints that the work programme was not working in the interests of charities and social enterprises, or the vulnerable people they worked with. "I realised I have been beating my head against a brick wall," she said. Before the last general election Palmer-Roye had helped host a meeting in Sutton at which the then leader of the opposition, David Cameron, outlined his plans to give charities and social enterprises a bigger role in the provision of public services. She said: "I believed it when Cameron said all that 'the third sector should be the first sector' stuff. I really did believe all that crap."

Separate to its south-east London contract, Eco Actif had been signed up by three prime contractors – A4e, G4S and CDG – to provide ad hoc specialist work programme support to ex-offenders. But Palmer-Roye said it had not received a single referral under these arrangements, putting its finances under further strain. Eco Actif, which had a turnover of around £700,000 and employed 14 people when it closed, was established six years ago as one of the earliest social enterprise "spin outs" from local government, delivering training in horticulture and construction to disadvantaged young people. It also holds a European Social Fund contract to provide support to workless families.

A Department for Work and Pensions spokesperson said: "Charities and voluntary sector organisations are playing an important role in the work programme, with many of them doing very well. We have seen very few voluntary sector organisations leaving the scheme. "Financial arrangements between prime providers and their supply chain partners are commercial matters between the organisations concerned, but all changes to the supply chain are subject to scrutiny to ensure that the service available through the work programme is not reduced or compromised."

The company which manages the south-east work programme on behalf of A4e, 3SC, said it was "obviously saddened" by the demise of Eco Actif, but had been taken by surprise by the company's decision to go into liquidation. In a statement it said: "From the outset of implementation and throughout delivery of the work programme we have worked extensively to support and develop Eco-Actif's delivery of the work programme contract to try to ensure its success and financial viability. At no point previously has Eco-Actif raised the subject of returning or renegotiating their work programme contract with 3SC, or indicated that the contract was placing them under such severe financial distress. We became aware of the circumstances and the decision to liquidate the company late on Thursday 12 July – less than 24 hours before closure of the company. Had we have been made aware of this situation earlier we would have done everything in our power to work with Eco-Actif, other consortia members, our work programme prime contractor A4e, Jobcentre Plus and the DWP to reach a better resolution."

3SC said it was establishing interim delivery arrangements to ensure none of the 500 work programme "customers" of Eco Actif suffered as a result of its closure. Palmer-Roye said: "We are absolutely distraught. We have been an integral part of this community working with the most disadvantaged for such a long time and delivering excellent results on all of our programmes."

Source: Guardian 15 Jul 12: