The dangers of payment-by-results in probation

Grayling's reforms show the coalition hasn't learned from the failure of the Work Programme.

Today the Justice Secretary, Chris Grayling, set out the coalition’s latest payment-by-results (PBR) scheme. Originally developed as a way of contracting out back-to-work employment services, this public services version of ‘no win, no fee’ is going to be extended to the probation service in an attempt to bring down reoffending.

The idea is simple – services once delivered by the state are contracted out to private and voluntary sector providers, but a big chunk of these providers’ fees are only paid if they achieve certain outcomes. So in the Work Programme around 80 per cent of the fee is paid only once an unemployed person has been supported into a sustainable job. In the probation service, the measure of success will be reoffending rates. The state only shells out if private companies do what they promise. What could possibly go wrong?

The answer is, unfortunately, quite a lot, as the Work Programme has shown a couple of years into the original contracts. And none of the lessons it’s thrown up seem to have been taken on board.

First, PBR is essentially a way of the state contracting out risk and uncertainty. In order to come up with the right price tag, the state needs to be able to price that risk. The problem comes when public commissioners have no idea about levels of risk involved in what they’re commissioning – and when contractors themselves have no control over some of the biggest risks like the state of the economy in the Work Programme. This is one reason why Work Programme contractors are likely to find themselves in difficulties – the original contracts built in overly optimistic assumptions about the labour market. So the contracts are too stretching and if they are stuck to, the government in effect will be underpaying for services given the economic backdrop.

Does it really matter? Surely underpayment is no skin off the state’s nose. But this is far too simplistic. There’s too much at stake with unemployment – the Work Programme providers really are too big to fail, which some of them may do if they fail to meet outcomes set out in their contracts. That’s arguably even more true in the case of probation services, where public safety is at stake. This implicit guarantee at least partially erodes the point of PBR as a risk transfer mechanism. And it muddies accountability. If the economy’s doing worse than expected – which affects reoffending as well as unemployment – who’s responsible for contractors not meeting their outcomes?

Second is the impact of payment-by-results on the voluntary sector. These PBR contracts couldn’t be more distant from the notions of "big society" or devolution – the proposals for the probation scheme are for just a handful of contracts covering huge swathes of the country. Only large private companies are able to absorb the risks involved in going for a contract of this size, which is why it is the Sercos and A4Es of this world delivering the Work Programme rather than even the largest charities involved in welfare to work. The idea is that these big contractors subcontract to the voluntary sector. Yet the Work Programme contracts have been structured in such a way that private providers can cream off the ‘safe’ payment not linked to outcomes and pass on more – not less – risk to the small voluntary organisations with whom they subcontract. The result is that far from building up voluntary sector capacity, PBR risks squeezing it at the expense of big companies. No wonder the sector is outraged.

The third fundamental problem with PBR is that it discourages knowledge-sharing of what works – whether that’s getting people back into work, improving kids’ reading or reducing reoffending. Initial data on the Work Programme shows there is big variance in the performance of different companies. What are some doing that’s more effective than others? This is a question of huge public interest. Yet PBR means that companies – far from sharing best practice across the public sector – have a commercial interest in protecting their recipes for success. This is one example of where there is a real tension between the profit motive and public interest, and it needs to be managed.

None of this to suggest that there is anything inherently wrong with private sector delivery of public services. Of course the public sector could stand to gain from intelligently incorporating some learning from the private sector if it’s done in the right way. But it’s just as ridiculous to say the private sector is always better at delivering public services than it is to say it’s always worse.

Unfortunately, the state has a history of making some pretty bad deals with the private sector – from PFI deals gone wrong to the public-private venture capital funds that lost huge amounts of money in the 1990s and 2000s. All of these examples highlight the importance of getting the relationship - and, crucially, the contract that structures that relationship – between the public and private sector right. But unfortunately for those who adopt a ‘private sector good, public sector bad’ mantra, that’s probably trickier to do than delivering efficient services in the first place. It’s a great shame the coalition shows no indication of learning the lessons from the Work Programme – and it means there’s a real risk PBR ends up being the PFI story of the 2010s.

Justice Secretary Chris Grayling speaks at last year's Conservative conference in Birmingham. Photograph: Getty Images.

Sonia Sodha is head of policy and strategy at the Social Research Unit and a former senior policy adviser to Ed Miliband. She tweets @soniasodha.

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The Tory-DUP deal has left Scotland and Wales seething

It is quite something to threaten the Northern Irish peace process and set the various nations of the UK at loggerheads with merely one act.

Politics in the UK is rarely quite this crude, or this blatant. The deal agreed between the Conservatives and Northern Ireland's Democratic Unionist Party has – finally – been delivered. But both the deal and much of the opposition to it come with barely even the pretence of principled behaviour.

The Conservatives are looking to shore up their parliamentary and broader political position after a nightmare month. The DUP deal gives the Tories some parliamentary security, and some political breathing space. It is not yet clear what they as a party will do with this – whether, for instance, there will be an attempt to seek new leadership for the party now that the immediate parliamentary position has been secured.

But while some stability has been achieved, the deal does not provide the Tories with much additional strength. Indeed, the DUP deal emphasises their weakness. To finalise the agreement the government has had to throw money at Northern Ireland and align with a deeply socially conservative political force. At a stroke, the last of what remained of the entire Cameron project – the Conservative’s rebuilt reputation as the better party for the economy and fiscal stability, and their development as a much more socially inclusive and liberal party – has been thrown overboard.

Read more: Theresa May's magic money tree is growing in Northern Ireland

For the DUP, the reasoning behind the deal is as obvious as it is for the Conservatives. The DUP has maximised the leverage that the parliamentary arithmetic gives it. As a socially conservative and unionist party, it has absolutely no wish to see Jeremy Corbyn in Downing Street. But it has kept the Conservatives waiting, and used the current position to get as good a deal as possible. Why should we expect it to do anything else? Still, it is hardly seemly for votes to be bought quite so blatantly.

The politics behind much of the criticism of the deal has been equally obvious. Welsh First Minister Carwyn Jones – representing not only the Labour party, but also a nation whose relative needs are at least as great as those of the six counties – abandoned his normally restrained tone to describe the deal as a "bung" for Northern Ireland. Scotland’s First Minister Nicola Sturgeon was also sharply critical of the deal’s lack of concern for financial fairness across the UK. In doing so, she rather blithely ignored the fact that the Barnett Formula, out of which Scotland has long done rather well, never had much to do with fairness anyway. But we could hardly expect the Scottish National Party First Minister to do anything but criticise both the Conservatives and the current functioning of the UK.

Beyond the depressingly predictable short-term politics, the long-term consequences of the Tory-DUP deal are much less foreseeable. It is quite something to threaten the integrity of the Northern Irish peace process and set the various nations of the UK at loggerheads with merely one act. Perhaps everything will work out OK. But it is concerning that, for the current government, short-term political survival appears all-important, even at potential cost to the long-term stability and integrity of the state.

But one thing is clear. The political unity of the UK is breaking down. British party politics is in retreat, possibly even existential decay. This not to say that political parties as a whole are in decline. But the political ties that bind across the UK are.

The DUP deal comes after the second general election in a row where four different parties have come first in the four nations of the UK, something which had never happened before 2015. But perhaps even more significantly, the 2017 election was one where the campaigns across the four nations were perhaps less connected than ever before.

Of course, Northern Ireland’s party and electoral politics have long been largely separate from those on the mainland. But Ulster Unionist MPs long took the Tory whip at Westminster. Even after that practice ceased in the 1970s, some vestigial links between the parties remained, while there were also loose ties between the Social Democratic and Labour Party and Labour. But in 2017, both these Northern Irish parties had their last Commons representation eliminated.

In Scotland, 2017 saw the SNP lose some ground; the main unionist parties are, it seems, back in the game. But even to stage their partial comeback, the unionist parties had to fight – albeit with some success – on the SNP’s turf, focusing the general election campaign in Scotland heavily around the issue of a potential second independence referendum.

Even in Wales, Labour’s 26th successive general election victory was achieved in a very different way to the previous 25. The party campaigned almost exclusively as Welsh Labour. The main face and voice of the campaign was Carwyn Jones, with Jeremy Corbyn almost invisible in official campaign materials. Immediately post-election, Conservatives responded to their failure by calling for the creation of a clear Welsh Conservative leader.

Read more: Did Carwyn Jones win Wales for Labour  - or Jeremy Corbyn?

Yet these four increasingly separate political arenas still exist within one state. The UK was always an odd entity: what James Mitchell astutely termed a "state of unions", with the minority nations grafted on in distinct and even contradictory ways to the English core. The politics of the four nations are drifting apart, yet circumstances will still sometimes mean that they have to intersect. In the current instance, the parliamentary arithmetic means the Tories having to work with a party that celebrates a form of "Britishness" viewed increasingly with baffled incomprehension, if not outright revulsion, by the majority of Conservatives, even, on the British mainland. In turn, the Tories and other parties, as well as the news-media, are having to deal with sudden relevance of a party whose concerns and traditions they understand very little of.

Expect more of this incomprehension, not less, in the post-2017 general election world. 

Roger Scully is Professor of Political Science in the Wales Governance Centre at Cardiff University.

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