Three reasons Chris Grayling's outsourcing plan for the probation service is a terrible idea

It's the Work Programme all over again, and this time, damage to public safety is a high price to pay.

Last week, the work and pensions select committee published its second report into the Work Programme. After six months of inquiries, the committee found that it was failing some of its most difficult cases. The central premise of the job finding scheme was for contractors - big companies, small companies, charities - to be paid by their success or otherwise in getting people back to work. You might have predicted what impact this binary target-driven culture would have: the committee concluded that "Creaming and parking" (helping the jobseekers for whom it's easier to find work) was endemic.

Now this is bad news. It’s disturbing because of the resulting joblessness and the increased benefits that’ll have to be shelled out by the state, but it’s perhaps even more disturbing because one of the chief architects of the scheme, Chris Grayling, is now at the Ministry of Justice, and attempting to bring in a similar system with regards to probation. When the Work Programme fails, someone doesn’t get a job. When probation fails, there’s a very real danger to the public.

And that’s why it’s vital for those working in the sector to raise concerns. But there seems to be every indication the minister doesn’t want to hear them - even going so far as to gag staff on social media. Earlier this year, I spoke to senior probation managers about the forthcoming plans for outsourcing. A number of concerns were raised - primarily about the lack of detail.

A couple of weeks ago, Grayling expanded on the plans in parliament. We learned that the probation service, which currently deals with 250,000 cases a year, will remain responsible for the 30,000 high risk cases, while control of the roughly 220,000 low to medium risk offenders will go to private firms and voluntary groups.

There seems an obvious issue here - one which has an uncomfortable parallel with the Work Programme’s struggles. How do you tell if someone is high, low, or medium risk? Are people really that simple? Aren’t these definitions changing all the time? Ian Dunt cites the example of domestic abuse in his excellent piece on the scheme:

Perhaps an offender has a minor conviction of some sort and authorities are aware they have problems at home. They are low risk. Then something changes. Neighbours hear fighting in the house and inform the police. The risk level has changed and it has to be managed accordingly. Supervision needs to increase.

Savas Hadjipavlou, Business Director of the Probation Chiefs Association, tells me:

There’s a difference in relation to accountability. Originally the public sector was simply accountable for everything that might go wrong. There was a suggestion it would have people in outsourced offices - that’s gone away and now a series of triggers are proposed. If the offender is of a certain risk level to go to contracted services there are triggers that mean they come back.

It might sound a decent solution - but there’s remarkably little detail on what these triggers are. The Government’s documentation makes vague reference to a “change in circumstances,” but that’s about it. And what happens when a client is deemed serious enough to be moved back to public sector staff? Will the work done by the private sector providers be forgotten?

There’s a more pressing issue - that of accountability. Bluntly: if the public sector is overseeing things, then whose fault is it if an offender being dealt with by the private sector kills someone? Mark Ormerod, Chief Executive of the Probation Association, tells me:

We understand the provider would be accountable if they hadn’t pulled the triggers. It would come to a review of the case in the way that happens now. The issue we drew attention to is that it’s more likely to go wrong because you’ve introduced an interface. Things go wrong when communication breaks down. And it gets more complicated when some of the triggers have been pulled, and when the person goes forward and backwards between providers it becomes more difficult to assign responsibility - whose fault is it? Risk levels change in about 25% of cases. In some of the cases we’ve looked at, the risk levels change substantially. Low or high-risk cases are easier to manage. They’re the minority though. It’s the bit in the middle where change is dynamic and contextual.

Of course the other thing about this system is that money’s involved: we’ve seen exactly the impact it’s had on the Work Programme. Surely it could mean the providers will be incentivised to pull some triggers and leave others? “Therein lies the difficulty: other factors come into play. They have recognised this - the public sector will be able to carry out renewed risk assessments. It goes back to the point about how the operating model works in practice: it’s difficult to regulate it by contract,” says Ormerod.

Hadjipavlou expands on this:

Originally the public sector could pull in a case - we asked how would they know when they could call it in. This is an attempt to say the public sector doesn’t have responsibility for the whole thing. It places more emphasis on the assessment system. But risk assessment is not that precise a science. The culture will be new to the providers. It’s about looking at the behaviour of an individual intelligently, looking at the person intelligently. Is the risk assessment system capable of that fine granularity?

And lurking beneath the radar is another issue - one that’s rather complex, which is why it’s not received much coverage. Under the Work Programme “Primes” like A4e contract work to smaller providers - “Subs”. There have been problems with this relationship, with dodgy contracts drawn up by the big firms' armies of lawyers, which have lead to the smaller ones losing money and in some cases going out of business. First, there’s a lack of detail here around how this is to be avoided: the proposals don’t even explain how the subs will be selected.

Second, this system is still one of the things the reform has going for it - it will, for example, free up voluntary agencies on crime-ridden estates to engage with people they know and who might respect them a bit more than statutory workers. However, for all their exciting ideas and local connections, you still have to preserve standards. Some expertise will come from the former state workers who take new jobs in the private sector, but the only nod to this issue is a mention of a new “probation institute”. Hadjipavlou tells me: “We’re supportive of the creation of an independent probation institute capable of promoting evidence based practice and standards across the public, private and voluntary providers.”

And there’s one more big problem - quite apart from the fact that there is no data to support the idea (the probation service has met all its targets, contrary to Government figures spun out about how it’s “failing” on the eve of the announcement, to the Mail and others), which is the timeframe. Ormerod says: “The speed at which we’re expected to ready ourselves is just breathless. There is more detail now but that only makes you realise more clearly how much has to be done in a very short timescale."


Three main issues with probation reform then: one, there’s no data to suggest it’s a good idea, two, the timeframe appears to be rushed, and three, there are few safeguards to prevent all the mistakes of the Work Programme being repeated (we’ve not even mentioned the threat of fraud that comes with the lack of transparency surrounding commercial contracts, nor the inflexibility of the Government contractors, as described here). It’s hard not to conclude the reforms are a frantic attempt to put ideology into action before an electoral deadline, rather than any kind of considered response to the problems of reoffending. The Government must tighten up these proposals. Damage to public safety is a high price to pay.
 

Chris Grayling has brought the ideas behind the Work Programme to the Ministry of Justice. Photograph: Getty Images

Alan White's work has appeared in the Observer, Times, Private Eye, The National and the TLS. As John Heale, he is the author of One Blood: Inside Britain's Gang Culture.

Getty
Show Hide image

We're racing towards another private debt crisis - so why did no one see it coming?

The Office for Budget Responsibility failed to foresee the rise in household debt. 

This is a call for a public inquiry on the current situation regarding private debt.

For almost a decade now, since 2007, we have been living a lie. And that lie is preparing to wreak havoc on our economy. If we do not create some kind of impartial forum to discuss what is actually happening, the results might well prove disastrous. 

The lie I am referring to is the idea that the financial crisis of 2008, and subsequent “Great Recession,” were caused by profligate government spending and subsequent public debt. The exact opposite is in fact the case. The crash happened because of dangerously high levels of private debt (a mortgage crisis specifically). And - this is the part we are not supposed to talk about—there is an inverse relation between public and private debt levels.

If the public sector reduces its debt, overall private sector debt goes up. That's what happened in the years leading up to 2008. Now austerity is making it happening again. And if we don't do something about it, the results will, inevitably, be another catastrophe.

The winners and losers of debt

These graphs show the relationship between public and private debt. They are both forecasts from the Office for Budget Responsibility, produced in 2015 and 2017. 

This is what the OBR was projecting what would happen around now back in 2015:

This year the OBR completely changed its forecast. This is how it now projects things are likely to turn out:

First, notice how both diagrams are symmetrical. What happens on top (that part of the economy that is in surplus) precisely mirrors what happens in the bottom (that part of the economy that is in deficit). This is called an “accounting identity.”

As in any ledger sheet, credits and debits have to match. The easiest way to understand this is to imagine there are just two actors, government, and the private sector. If the government borrows £100, and spends it, then the government has a debt of £100. But by spending, it has injected £100 more pounds into the private economy. In other words, -£100 for the government, +£100 for everyone else in the diagram. 

Similarly, if the government taxes someone for £100 , then the government is £100 richer but there’s £100 subtracted from the private economy (+£100 for government, -£100 for everybody else on the diagram).

So what implications does this kind of bookkeeping have for the overall economy? It means that if the government goes into surplus, then everyone else has to go into debt.

We tend to think of money as if it is a bunch of poker chips already lying around, but that’s not how it really works. Money has to be created. And money is created when banks make loans. Either the government borrows money and injects it into the economy, or private citizens borrow money from banks. Those banks don’t take the money from people’s savings or anywhere else, they just make it up. Anyone can write an IOU. But only banks are allowed to issue IOUs that the government will accept in payment for taxes. (In other words, there actually is a magic money tree. But only banks are allowed to use it.)

There are other factors. The UK has a huge trade deficit (blue), and that means the government (yellow) also has to run a deficit (print money, or more accurately, get banks to do it) to inject into the economy to pay for all those Chinese trainers, American iPads, and German cars. The total amount of money can also fluctuate. But the real point here is, the less the government is in debt, the more everyone else must be. Austerity measures will necessarily lead to rising levels of private debt. And this is exactly what has happened.

Now, if this seems to have very little to do with the way politicians talk about such matters, there's a simple reason: most politicians don’t actually know any of this. A recent survey showed 90 per cent of MPs don't even understand where money comes from (they think it's issued by the Royal Mint). In reality, debt is money. If no one owed anyone anything at all there would be no money and the economy would grind to a halt.

But of course debt has to be owed to someone. These charts show who owes what to whom.

The crisis in private debt

Bearing all this in mind, let's look at those diagrams again - keeping our eye particularly on the dark blue that represents household debt. In the first, 2015 version, the OBR duly noted that there was a substantial build-up of household debt in the years leading up to the crash of 2008. This is significant because it was the first time in British history that total household debts were higher than total household savings, and therefore the household sector itself was in deficit territory. (Corporations, at the same time, were raking in enormous profits.) But it also predicted this wouldn't happen again.

True, the OBR observed, austerity and the reduction of government deficits meant private debt levels would have to go up. However, the OBR economists insisted this wouldn't be a problem because the burden would fall not on households but on corporations. Business-friendly Tory policies would, they insisted, inspire a boom in corporate expansion, which would mean frenzied corporate borrowing (that huge red bulge below the line in the first diagram, which was supposed to eventually replace government deficits entirely). Ordinary households would have little or nothing to worry about.

This was total fantasy. No such frenzied boom took place.

In the second diagram, two years later, the OBR is forced to acknowledge this. Corporations are just raking in the profits and sitting on them. The household sector, on the other hand, is a rolling catastrophe. Austerity has meant falling wages, less government spending on social services (or anything else), and higher de facto taxes. This puts the squeeze on household budgets and people are forced to borrow. As a result, not only are households in overall deficit for the second time in British history, the situation is actually worse than it was in the years leading up to 2008.

And remember: it was a mortgage crisis that set off the 2008 crash, which almost destroyed the world economy and plunged millions into penury. Not a crisis in public debt. A crisis in private debt.

An inquiry

In 2015, around the time the original OBR predictions came out, I wrote an essay in the Guardian predicting that austerity and budget-balancing would create a disastrous crisis in private debt. Now it's so clearly, unmistakably, happening that even the OBR cannot deny it.

I believe the time has come for there be a public investigation - a formal public inquiry, in fact - into how this could be allowed to happen. After the 2008 crash, at least the economists in Treasury and the Bank of England could plausibly claim they hadn't completely understood the relation between private debt and financial instability. Now they simply have no excuse.

What on earth is an institution called the “Office for Budget Responsibility” credulously imagining corporate borrowing binges in order to suggest the government will balance the budget to no ill effects? How responsible is that? Even the second chart is extremely odd. Up to 2017, the top and bottom of the diagram are exact mirrors of one another, as they ought to be. However, in the projected future after 2017, the section below the line is much smaller than the section above, apparently seriously understating the amount both of future government, and future private, debt. In other words, the numbers don't add up.

The OBR told the New Statesman ​that it was not aware of any errors in its 2015 forecast for corporate sector net lending, and that the forecast was based on the available data. It said the forecast for business investment has been revised down because of the uncertainty created by Brexit. 

Still, if the “Office of Budget Responsibility” was true to its name, it should be sounding off the alarm bells right about now. So far all we've got is one mention of private debt and a mild warning about the rise of personal debt from the Bank of England, which did not however connect the problem to austerity, and one fairly strong statement from a maverick columnist in the Daily Mail. Otherwise, silence. 

The only plausible explanation is that institutions like the Treasury, OBR, and to a degree as well the Bank of England can't, by definition, warn against the dangers of austerity, however alarming the situation, because they have been set up the way they have in order to justify austerity. It's important to emphasise that most professional economists have never supported Conservative policies in this regard. The policy was adopted because it was convenient to politicians; institutions were set up in order to support it; economists were hired in order to come up with arguments for austerity, rather than to judge whether it would be a good idea. At present, this situation has led us to the brink of disaster.

The last time there was a financial crash, the Queen famously asked: why was no one able to foresee this? We now have the tools. Perhaps the most important task for a public inquiry will be to finally ask: what is the real purpose of the institutions that are supposed to foresee such matters, to what degree have they been politicised, and what would it take to turn them back into institutions that can at least inform us if we're staring into the lights of an oncoming train?