Watchdog: Government has no grip on £15bn of payment-by-results schemes

Report by the NAO says departments have often failed to set out rationale for use of payment-by-results mechanisms

By Colin Marrs

18 Jun 2015

The government cannot demonstrate the value of up to £15bn of public spending on payment-by-results (PbR) schemes, the National Audit Office has concluded.

In a report released today, the spending watchdog said that neither the Cabinet Office nor the Treasury is currently monitoring how such mechanisms are working.

It said that without such an evidence base, PbR schemes may be poorly designed and implemented, and that departments could be “reinventing the wheel” for each new scheme.

“Payment by Results potentially offers benefits such as innovative solutions to intractable problems," said Amyas Morse, head of the National Audit Office. "If it can deliver these benefits, then the increased risk and cost may be justified, but this requires credible evidence. Without such evidence, commissioners may be using this mechanism in circumstances to which it is ill-suited, to the detriment of value for money.”

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The NAO reported on a number of PbR schemes including welfare-to-work, family support, offender rehabilitation and international aide.

It identified 52 PbR schemes across six central government departments worth a total of at least £15bn.

The schemes are operated by the Department for Work & Pensions, Ministry of Justice, Department for Communities and Local Government, Department for International Development, Department for Education, Department of Health and their related bodies.

The NAO concluded that the mechanism is a “technically challenging” form of contracting, which carries costs and risks that the government has often underestimated.

Despite this, it said that commissioning departments have often failed to explain why they have chosen to use PbR.

According to the report, poorly designed schemes can create perverse incentives leading providers to neglect groups which are harder to help.

It recommended that commissioners should establish performance expectations at the start of PbR schemes and actively monitor and manage provider performance.

A Cabinet Office spokeswoamn said the department would "learn lessons" from the report, but defended the use of the mechanism.

"Payment-by-results can of course improve our public services because taxpayers ultimately only pay for what is achieved, raising efficiency and providing value for money for the taxpayer," she said.

Public and Commercial Services union general secretary Mark Serwotka said the NAO's findings showed that "that all too often private companies are being rewarded for failure without proper scrutiny".

He added: "The fact the Cabinet Office and Treasury didn't know how much we're spending on these schemes is deeply concerning, and the public can't have any confidence that the delivery of public services isn't being compromised by ideology."

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