The Ministry of Justice “set itself up to fail” with the rushed introduction of a payment-by-results model for probation services that was fundamentally “inappropriate”, the National Audit Office has said.
In a damning report on the Transforming Rehabilitation programme, the public spending watchdog said the department would find itself forking out at least £467m more than it originally envisaged to deliver the programme – even though its first contracts are being terminated early.
Introduced under then-justice secretary Chris Grayling in 2013, the reforms saw the creation of community rehabilitation companies – CRCs – to oversee the rehabilitation of low or medium-risk offenders, and the National Probation Service to manage offenders posing higher risks.
CRCs – of which there were originally 21 – were tasked with reducing reoffending rates and introducing new innovations in rehabilitation, and were in line to receive “maximum” payments of £3.7bn between 2014, when work commenced, and the end of the 2021-22 financial year.
However, by March 2017 just six of the companies were consistently achieving significant reductions in reoffending, while reduced volumes of work and a failure to make efficiency savings meant that CRCs were facing significant losses.
The MoJ tweaked its financing arrangements for CRCs in late 2017, effectively providing a £342m boost for them, however by the following March they were still facing collective losses of £294m over the life of their contracts. Their work had originally been expected to deliver profits of £269m. Last month, Working Links – which owned three CRCs – went into administration.
Additionally, while the early years of the reforms recorded a 2.5% reduction in the proportion of reoffenders, a 2017 snapshot found there was a 22% increase in the number of offences committed by service users when they did go on to commit more crimes. Redcing the number of new offences committed by those who go on to reoffend – the so called "frequency rate" was one of the payment-by-results criteria on which CRCs' success was measured.
The NAO said the number of people recalled to prison had increased by 47% as a result of statutory rehabilitation being extended to those serving sentences of less than 12 months. It said that between January 2015 and September 2018 offenders on short sentences as a percentage of those recalled to prison rose from 3% to 36%.
In July last year the MoJ announced it would terminate CRC contracts 14 months early in December 2020. However it intends to operate a revised model that retains the split between CRCs and the NPS.
The NAO’s report today said that terminating the current CRC contracts early would cost the taxpayer at least £171m, however it said the earlier efforts to stabilise CRCs’ finances meant it would be paying at least £467m more than the original contracts required.
As of August last year, the MoJ was projecting that the payment ceiling of £3.7bn would reduce to £2.3bn because of the shortened contract periods, however the NAO said the full cost of the reforms would not be known until the end of next year at the earliest.
The NAO said today that the MoJ’s contracts with CRCs had proved to be ineffective, hampering its ability to hold providers to account for poor services.
“It designed outcome-based contracts to encourage CRCs to innovate, but this did not fit well with its low risk appetite for failure,” it said.
“As it takes two years for data on reoffending to become available, and changes in reoffending cannot be directly attributed to CRCs’ interventions, its payment by results model was inappropriate for probation services.”
NAO head Sir Amyas Morse said Transforming Rehabilitation had provided a litany of errors that needed to be learned from for its successor programme.
“The ministry set itself up to fail in how it approached probation reforms,” he said.
“Its rushed roll-out created significant risks that it was unable to manage. These have had far reaching consequences. Not only have these failings been extremely costly for taxpayers, but we have seen the number of people on short sentences recalled to prison skyrocket.
“It is welcome that the ministry’s proposals address some of the issues that have caused problems, but risks remain. It needs to pause and think carefully about its next steps so that it can get things right this time and improve the quality of probation services.”
Public Accounts Committee chair Meg Hillier said that in its haste to rush through reforms, the MoJ had failed to deliver the transformation it originally promised.
“Its botched contracting has left this essential service underfunded and will cost the taxpayer an extra £467 million, while the National Probation Service is hampered by a shortage of staff and intolerable workloads,” she said.
“The ministry now needs to reflect and ensure that its new proposals can deliver the much needed improvements to probation services.”
Prisons and probation minister Rory Stewart accepted that the performance of CRCs had fallen significantly below what had been inspected, but insisted the NAO report had included positive findings.
“Transforming Rehabilitation has meant that we are now monitoring 40,000 more offenders than we were in the past. This is good for public safety,” he said.
“I am pleased that the report recognises the strong performance of the National Probation Service in looking after our higher risk offenders. But the performance of the CRCs, which look after our lower risk offenders is too often deeply disappointing. That is why we have stepped in to end contracts early and invested an extra £22m a year in services for offenders on release.”
He added: "We take the NAO’s findings very seriously and will set out our detailed proposals for the future of probation later this year.”