Keith Faulkner, chairman of welfare-to-work provider Working Links, says that when New Labour came to power a visit to an employment centre was as impersonal as an encounter with a checkout assistant at a supermarket. "In 1997, you had a public employment service that was providing a very basic service to jobseekers," he says.

            He points to his office in Hackney, east London, as an example of how radically the process of getting unemployed people back to work has changed. Brandishing a red marker pen, a "retail services" tutor is instructing six students in the art of handling an angry customer who wants to return a faulty handbag. "Smile, nod, don't forget eye contact," he tells the students, writing bullet points on a flip chart. "Have an open mind. Don't assume they are lying to you."

            The attentive young adults in the classroom are halfway through a 25-hour course training them to apply for retail work, part of a programme run by Working Links for people who have been unemployed for more than six months. Around 60% of those referred to this busy office left school with no qualifications and have problems with basic literacy and numeracy. Others could be former prisoners, have mental health problems, be drug addicts or alcoholics, or be homeless. Getting them to a stage where they are ready to consider applying for a retail job requires considerable persistence.

            Over the last 12 years, a welfare-to-work industry has developed, run largely by private companies. Critics of the New Deal programme say it has been an expensive failure – the Department for Work and Pensions puts the total cost at around £6.5bn – that has not fulfilled its aim of breaking the cycle of intergenerational poverty or of tackling youth unemployment. Frank Field, Labour's former welfare minister, described it as a "woeful" failure.

            Faulkner, one of the founding fathers of the industry, unsurprisingly disagrees. "The criticism of the New Deal to begin with was that those 18- to 24-year-olds would have found jobs anyway," he explains. "The analysis goes: 'Yes, you moved those people into work, but you have spent a lot of money to do that, and maybe as many as 80% of those would have found a job anyway.' There isn't the data to support it, but anyone who worked through that period knows that the quality of the jobs that they got into were far better and far more secure than they would have got if they had been left on their own."

            Faulkner defends the entry of private companies into a realm previously controlled almost exclusively by the public sector – but only if they balance their thirst for profits with a sense of social justice.

In-house charity

            In 1999, Working Links was created jointly by the government employment service, the recruitment company Manpower, and Ernst and Young. It won the majority of the first round of government contracts aimed at pushing long-term jobless people into work. A decade later, it has 2,000 employees, an annual turnover of £85m, and has supported around 130,000 people into work. Last year, it made a £1.6m profit, of which 33% was invested back into an in-house charity, the Links Foundation.

            Faulkner, who spent three decades with Manpower, says he was able to bring the private sector's aggressively competitive, market-place ethos into the welfare-to-work industry. The ownership of Working Links is now split three ways – between private sector shareholders CapGemini and Manpower, Australian charity Mission Australia, and the UK government. This means, he argues, that pressure to make profits is restrained by an undercurrent of public service zeal.

            "Two-thirds of the board's votes are either public sector or voluntary sector," Faulkner says. "It means our board is very interested in assessing the quality of the contribution we are making to tackling long-term unemployment. They are not going to be purely focused on profit."

            Yet he warns that the way government welfare-to-work contracts are structured means there is potential for companies to take the easiest route to picking up their payments if their primary aim is profit generation. "If you have entered into a contract with government, you can decide whether your job is to maximise profit or to maximise your success in helping people find work and stay there," he says.

            "However carefully you construct contracts, and however well you do your contract management, an organisation that is primarily focused on profits can achieve greater profitability by providing a rather lesser service."

            Most providers spend money on offering one-to-one consultations with job advisers, as well as training, addiction counselling, literacy courses, and cash grants for jobseekers to buy clothes appropriate for interviews, but they have to weigh their spending against the likelihood that the investment will generate work.

            Under the Flexible New Deal – the latest incarnation of welfare to work, launched in some parts of the country last year – providers get a total of £1,500 per person they help to find a permanent job. Of that, 30% is paid up front once someone is signed up to the scheme, and the rest is payment by results, when they have got an individual into a job that lasts six months or more.

            To maximise profit, the companies can choose to focus on getting the least challenging back into work, and not spend money on those whose problems appear overwhelming. Faulkner has helped campaign for the creation of a code of conduct for welfare-to-work providers – the Merlin Standard – which he hopes will help to prevent the quest for profits damaging the quality of service provided.

Basic formula

            Faulkner does not anticipate another major revolution in this sector if the Conservatives win the next election. There will be refinements of the way that contracts are set up, but he thinks that the basic formula will not be challenged.

            However, he predicts that the process of pushing the long-term unemployed back to work is set to get harder, arguing that those who were long-term unemployed in 1997 were generally in a better position to find work than they are now.

            At the Hackney office, the students have written up their career aspirations. One would like to be in the army, but will accept a job in a shop; another hopes to become a receptionist, but will settle for anything. This office has a 52% success rate, with the other 48% of jobseekers dispatched back to the state-run Jobcentre Plus after a year.

            "There are some people who have a very high chance of still being unemployed at the end of the contract," Faulkner says."But we should never give up on someone."