UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 94-iii

House of COMMONS

Oral EVIDENCE

TAKEN BEFORE the

Justice Committee

CRIME REDUCTION POLICIES: A CO-ORDINATED APPROACH?

Tuesday 12 November 2013

Ian Mulheirn, Toby Eccles, Tom Gash and Max Chambers

Sue Hall, Sebert Cox and Oliver Henman

Evidence heard in Public Questions 113 - 177

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Oral Evidence

Taken before the Justice Committee

on Tuesday 12 November 2013

Members present:

Sir Alan Beith (Chair)

Mr Steve Brine

Mr Christopher Chope

Jeremy Corbyn

Mr Elfyn Llwyd

Andy McDonald

Yasmin Qureshi

________________

Examination of Witnesses

Witnesses: Ian Mulheirn, Associate Director, Oxford Economics, Toby Eccles, Founder and Development Director, Social Finance, Tom Gash, Director of Research, Institute for Government, and Max Chambers, Head of Crime and Justice, Policy Exchange, gave evidence.

Chair: Thank you for coming to give evidence this morning. I welcome Ian Mulheirn from Oxford Economics, Toby Eccles from Social Finance, Tom Gash from the Institute for Government and Max Chambers from Policy Exchange. We look forward to hearing your thoughts on a number of the issues around the changes affecting the probation service, in particular, under the heading of our report on "Transforming Rehabilitation". I ask Yasmin Qureshi to open the questioning.

Q113 Yasmin Qureshi: Thank you, Chair, and good morning, gentlemen. As you are aware, we are looking into the issue that the Ministry of Justice wants to open probation service delivery to a wider market-private companies and not-for-profit companies. I want to ask some questions around that particular aspect, particularly in light of the fact that the Ministry initially rolled out programmes in 2011 where payment by results was going to be seen but then abandoned the plans mid-way, so no one had a chance to see what the end result was or what the conclusions were. However, it is intending to go ahead. First, what do you see as the rationale for competing probation services in the way the Ministry of Justice plans? Do you think this model is financially viable? Anyone can start.

Toby Eccles: I shall have a go. The first thing to say is that there is a series of rationales but also a series of constraints.

Chair: You need to speak up in this room-the acoustics are not very good.

Toby Eccles: Okay. There is rationale, but there are also constraints. A rationale of being interested in working with short-sentence offenders as well as long-sentence offenders and focusing on reducing reoffending, which is clearly creating a very significant criminal burden on the country, seems very sensible and coherent; there is wide agreement on that. Then you meet the constraints-namely, the budget agreed by the previous Secretary of State, with a different strategy. The pace is created both by the size of the window of political opportunity and the budget constraints, which require the Secretary of State to make savings quite quickly. That leaves us with a model that appears to be moving uncomfortably quickly, but towards an end goal that has the potential to be sensible.

Tom Gash: It is quite clear that one of the difficulties in this area has always been that there is a huge shortage of evidence on what drives reoffending rates. There is also a very low evidence base about the benefits of putting things out to contract. The evidence on the contracting side to allude to is that the best studies have been in the areas of facilities management and waste management. They tend to show that private sector outsourcing proposals in the 1990s ended up with a 10% to 20% efficiency improvement, with no overall drop in quality. However, that is at the simple end of services. All of our research at the Institute for Government shows that, as you get into more complex services, the costs and overheads of managing and monitoring contracts go up considerably. We would not expect to see similar, commensurate levels of savings and efficiency from contracting out in this way, unless you changed what the service is actually doing and providing. That is some evidence on the contracting side.

I think it was operating with very little evidence and that has been forced on the Department and the Secretary of State. In that context, you have a question of what to do-do you do nothing, because you have no evidence, or do you try to change something and make a difference? The Secretary of State has gone for the second option. Given the lack of certainty in all sorts of dimensions, I would say that the obvious approach should be one where you phase reforms, learn, change, adapt and build in as much flexibility as possible, whereas it looks like the approach that is being taken is to go for a big bang of reform, not building in enough capacity in lots of different ways, including contract length and the timetable for the reforms, to allow you to learn and adapt as you get experience of doing this stuff. The cancellation of the pilots is one thing, but I do not think they were necessarily ever of sufficient scale to get the type of learning you need.

The obvious thing was to phase the roll-out-as happened, for example, in railways. It is very interesting to think about the West Coast Main Line story that we had recently and to say, "A mistake was made there, which cost £100 million-maybe more." That was for one part of the country that was being contracted at a specific moment in time. If it had been for the whole country at the same time-and remember that they had 10 or 15 years’ experience in this area-it is quite scary to think about the level of risk that is going on in some of these big contractual negotiations. More should be done to manage those risks.

Max Chambers: I would like to make a point about the pilot process. I was involved in that process, working for a provider at the time. I came to the view that many of the pilots would not have happened. The commercial models that were being pursued were not viable, and the Ministry of Justice was being quite intransigent about changing those models as the process went on. The pilots also would not have delivered results until 2017 at the earliest. As Tom has mentioned, they were not at the scale that you would have needed to be able to glean anything particularly useful from them. Also, they were not very strategically conceived, so it would have been very difficult to take much from the results, apart from whether one provider had outperformed another. I would question whether it was worth waiting five years for relative provider performance.

My sense was that a lot of the big dimensions of choice had been worked out through the pilot process-which part of the system to incentivise, how to procure, how to measure and how to pay. For me, all of those things were tested to destruction as part of that process. There should be enough learning within the Department to know how to scale payment by results without waiting a number of years for those pilots to come to fruition.

Ian Mulheirn: The point that I would make about the rationale for commissioning probation in this way follows on a bit from what Tom said. We have lots of evidence-or a fair amount of evidence, at least-that you can cut costs for simple services by outsourcing in this way. The question is, can this sort of thing work in more complicated services? There you are looking for a different kind of improvement-for innovation, not just simple cost cutting. The question is, can you get innovation? That brings us to the question of whether you are commissioning for quality or just on price. With the conventional procurement methods, you are really commissioning on price, with some clearly stipulated goals. Here, with much more complicated services, there is a risk that you just drive out all the quality.

Payment by results is supposed to be the way around that, by uniting the two and aligning the incentives, so that there is no divergence between quality and price for the provider and for the commissioner. That is why it is so important to get the payment mechanism right if you are going to be able to commission effectively in this way.

Q114 Yasmin Qureshi: In essence, you are saying that, even if the pilots had been done, they were too small in scale to show you what could ultimately have been done. You are also saying that measuring quality in these types of things is very different from waste management or whatever. You can quantify how many bins you have cleared out or whatever in a particular week and how much it cost, whereas how you rehabilitate somebody and the cost of that are a completely different thing. Am I to understand from what you are saying that perhaps this is being rushed too quickly and not being thought through properly, given that they are going in for wholesale privatisation of the probation service?

Ian Mulheirn: I think there is a balance to be struck. Every scheme that you run-every pilot-is slightly different from every other one. We have seen similar things in payment by results in employment programmes around the world-some of them have shown results, but some of them have not done so much. It is very sensitive to design. In some ways, I am sympathetic to Ministers saying, "You know what-we can’t replicate exactly what happened in that pilot. It is going to be completely different at the national level, so we may as well get on with designing the national-level programme." Having said that, there are some broad lessons you could probably learn from seeing the pilots through, so I tend to agree that it is being rushed a bit fast. However, Ministers have a point when they say, "You could spend your whole life doing little pilots and never actually getting on with the main show."

Max Chambers: The other point about speed is that the Work programme was the creation of a whole new service nationwide, to be up and running within about 18 months or two years. Here, there are existing services-this is not the creation of a whole new service. It is something the state knows a huge amount about, as it has provided probation services for a century. There is a restructure, which Government have done before-that is the first stage. Then there is a procurement process, which Government have done before. Then there are CRCs-community rehabilitation companies-running in shadow form for six months, a long mobilisation period. Combined with the pilot process that we have seen and all of the work that has been going on to design those pilots and then the national programme, this will take a lot longer than welfare to work, and it is probably simpler and more comfortable for Government to do.

Tom Gash: I would challenge that analysis on simplicity. I would say this is probably the most ambitious outsourcing programme that the Government have embarked on. We designed an analytical tool-quite boring and technical, perhaps-at the Institute for Government to identify the questions you need to ask when you are thinking about outsourcing that will make it easier or harder to do. Some of those questions include "Is it easy to measure the value added by the provider?" and, "Is the service highly connected with other services?" On probation, the answer to lots of those questions is yes. When the answer is yes, that makes it much, much more difficult.

The interrelationships for probation and other parts of the public sector are enormously complex. Adding into that a particular additional separation between an in-house provider of probation services for higher-risk offenders and a contracted provider for other offenders is a type of complexity that is clearly different by an order of magnitude from that which we see in other areas. The provider market is extraordinarily immature. You are bringing in providers to manage these services that have not done it before, admittedly with a work force who are experienced and have experience of operating in this environment. To me, lots of the signals suggest that this is an incredibly complex programme, on a timeline that has not been achieved before.

The example of the Work programme is probably a false analogy; I think it is important for the Committee to consider that. Over 15 years, the Government have been contracting out employment services in different ways, at local and national level-it was a patchwork. The Work programme was a big programme, but it was built on 15 years of experience in the market, so providers knew what was going on and had had a chance to learn, to adapt and to improve their capability. This is a completely different scale and order of magnitude from that.

Toby Eccles: There is a very specific difficulty here, in that there is a real paucity of data on actually working with short-sentence offenders and knowing whether you can do effective work to reduce their reoffending, while in the work situation there is much more data. Also, here you are talking about probably 85% or 95% of revenues coming through as normal income and a fairly modest proportion coming as outcome payments. Really, the question in this process is, will there be any incentive to focus on reoffending or not? You have a whole restructuring process to do. The work force and everybody else have an enormous amount of change to work with. Will rehabilitation just be lost in the process?

When we built the social impact bond model, we were focused on trying to make contracts that were service-user focused, that had the flexibility to adapt and change according to what they were learning and that had feedback loops, so that you were learning what you were doing wrong and right and improving on that, and then had some sort of pressure to respond to that feedback and improve your activity. Really, the question is whether, given that we are dealing with a complex system, with hard-to-reach individuals with complex needs, the contracts that are going to be put in place will be able to cope with that complexity and have the flexibility to do so.

Chair: We have quite a lot of ground to cover. That is very helpful in laying out some of the broad differences, but we will need to move on fairly quickly. Not everybody need contribute to everything, but I want to ensure that different views are given an opportunity. Yasmin, is there anything else you want to add?

Q115 Yasmin Qureshi: I was going to say that that fits in with the fact that this roll-out is going to be in 21 different areas with three tiers of providers, over tiers 1, 2 and 3. As you probably know, there are many people in the country who feel that probation services do a very good job anyway, so why are they being privatised and why is all of this being done to a service that is working very well? Do you have any observations on that, or general feeling that it should not be undergoing such large-scale structural changes?

Toby Eccles: On a personal level, I think it is very difficult to tell from outside whether or not probation could be run more efficiently, so I would pass on that.

Max Chambers: The one experience that we have of probation outsourcing on a reasonable scale is community payback in London, where the reported efficiency is 37%. That indicates to me that there is significant fat in the way that it is being run. I know that you will probably come on to some questions about financial viability, but, if that were not the case, the Government would not be able to talk about extending services to short-sentence prisoners within the overall envelope. I think that is at the heart of this.

Ian Mulheirn: Personally, I would not focus on cost cutting; I would focus on innovation. The opportunity here is about driving innovation and using the payment-by-results mechanism to encourage people to free up the front line to use their knowledge to best effect. That is something that central Government cannot do with the public service because the Minister is ultimately responsible, whereas here, if you can locate the financial risk at the front line, you can free up the front line to use its better knowledge to do a better job. I think that is very exciting.

Q116 Yasmin Qureshi: I have one final question before we move on. There is some suggestion that the Government have said that the data on cost savings cannot be published as they are commercially sensitive, but how can the potential value for money of public service reforms that rely on external commissioning be determined in the absence of data on costs? If you do not how much you are spending, how do you know you are efficient?

Max Chambers: You cannot, as Parliament; it is difficult. Presumably, the rationale is that somehow that would prejudice or influence the competition process. There is an argument for that. The other thing to bear in mind is that surely these proposals will have been through proper Treasury and Home Affairs Cabinet Committee approval, so the idea that the numbers do not stack up is probably a red herring.

Q117 Jeremy Corbyn: On the points that Mr Chambers and Mr Mulheirn have just made, Mr Mulheirn said that the private sector had better knowledge than Government services.

Ian Mulheirn: No, I did not-I said front-line providers have better knowledge than central Government have.

Q118 Jeremy Corbyn: Meaning who?

Ian Mulheirn: The experts who are currently delivering probation.

Q119 Jeremy Corbyn: Meaning the private sector or the probation service?

Ian Mulheirn: The structure does not matter. What matters is that the people at the front line have better expertise than central Government policy makers, but they are not freed up to use that because all the political and financial risk sits at the centre. The centre directs, yet it knows an insufficient amount about what good services look like. I would say that it does not matter whether the financial structure is private, third sector or public, as long as you can put some financial risk at the front line.

Q120 Mr Llwyd: Good morning. The MOJ has stated that there are approximately 30 organisations wishing to become, in effect, prime providers. In your view, is there sufficient scope in the planned reforms for a broad range of new providers to come into the market? Has the Ministry done enough to encourage the diversity it seeks?

Toby Eccles: There are two sides to this. One is that, if you have a procurement process that is run in a set way, coming out the other end you are likely to end up with organisations that look roughly similar doing best. You are in danger of moving from one monotone solution to a second monotone solution, rather than creating what in my view would be best, which is a diverse market coming out at the other side, with a mix of private sector organisations, mutuals and social sector organisations-different people taking up different roles.

Is the model that is being used likely to come out with that? There are some attempts at creating that by making smaller areas, to allow smaller bidders to participate, but it still feels as if the model being used is one that will favour those who have gone through lots of procurement processes with the Ministry of Justice before, because they are used to answering the questions and the people marking them are used to marking their answers. There is an element of an inherent incumbency bias, if you like, in the model.

I also think that there is a real constraint in terms of the amount of knowledge out there as to whether or not one can bid, so you have considerable uncertainty. There are also some financial constraints. You are being asked to demonstrate that you have half a year’s worth of money available to start off with. You cannot raise money to do this if you have no idea what you are doing, so you have to have that money available already. You are creating another constraint in the market in that way.

Q121 Mr Llwyd: In other words, the 30 organisations are probably fewer than six.

Toby Eccles: I would hesitate, because clearly I have not seen the list, but I assume that there will be quite a few mutuals in there and some that are relatively speculative.

Tom Gash: We should credit the Ministry of Justice with some interesting innovations to try to make sure that it gets a more diverse market of suppliers. One thing that it has done that I think is really positive is to put a 25% cap on the value and volume of work going to any individual provider. That is the sort of thing that should probably be more standard across the public sector, and we should credit that. There has also been a reduction in the balance sheet requirement from a lot of standard Ministry of Justice contracts. Basically, it requires people to have less capital than in previous tendering processes; we should commend that as well.

The problem for me is that some of the smaller providers or the mutuals will really struggle to get up and running and operational, while also putting in a bid in a process they have never gone through before at national level. That is clearly going to disadvantage them, which is why in any market creation reform you are much better off phasing these things. You would do an area of the country at one point; meanwhile, mutuals can start to develop and get themselves on to a sound footing. Then they can bid for the next round that comes out in a year’s time. It has been the standard received wisdom that this is what you do when you are doing a major national outsourcing programme, but there has been a decision not to do it in this case. Obviously, it is driven by the timelines and the desire to change things quickly, but I think there should be a question about where the appropriate scrutiny is coming for that in terms of value for money for Government overall and where the Treasury is on this.

Max Chambers: I would be surprised if it ends up being 30 organisations. The MOJ has structured it in such a way that not only do you have to have the financial standing but you also have to have had direct experience of working with offenders. I think that will force partnerships. You will end up with some of the big providers, but they are being compelled to club together with voluntary sector and other organisations in consortiums, which will make it more complicated for them. You will probably end up with fewer than 30 but with partnerships instead.

Q122 Chair: Last night, we had a letter from the Lord Chancellor saying that 70 organisations have completed the registration process via their e-sourcing portal. You can interpret that as you will, but that is the number that have actually registered so far.

Ian Mulheirn: My reflection on the diversity issues is that it is clearly important to have diversity if you are going to make the competition work but there is a tension here with the ability to measure results. One of the reasons why the Department has gone for relatively large areas is that it knows that the smaller you get, the harder it is to identify any results. If we get round to talking about the payment mechanism, we will see that there is huge risk for providers that have small groups of offenders to work with that they will not get paid, because they will not be able to make a sufficient difference to the numbers to prove to the Department statistically that they have made a difference. That means that there is massive risk for providers in small areas.

Q123 Mr Llwyd: In its evidence to us, the Institute for Government observes that the market for probation services is relatively immature and that currently no private or voluntary sector providers provide the full array of services, which goes along with what you are saying. I quote directly: "Commissioning providers which do not yet have this capacity is highly risky. The capacity may never develop, or it may develop in ways that do not necessarily improve service outcomes." I expect that Mr Gash will stick by that. Do the other gentlemen on the panel have any observations on that statement?

Chair: Does anybody else want to comment on the Institute for Government’s view on that?

Tom Gash: Can I expand on it a bit?

Chair: There is a surprising reluctance for anyone else to challenge it.

Tom Gash: The point is that some providers will be able to succeed and some will not. We do not know how well different providers will hold up either financially or in terms of their service quality and service standards. Given that that is the case, what you need is flexibility to shift who is providing over time. This is where we get into questions such as contract length and the decision to go for seven years. From my external assessment-I do not have all the data, so you cannot work this out from outside-that seems excessively long for a relatively non-capital-intensive contract.

What has been announced is a seven-plus-three contract length. It is then much more difficult to replace underperforming providers, so lots of attention probably needs to go into what service standards could trigger a change of provider and into thinking about how you would change a provider if they failed financially. Stress-testing and running some scenarios on that is vitally important before this begins. All scrutinisers should probably be thinking about getting assurances that that process has been gone through.

Mr Llwyd: You have answered my next question-about what happens if it fails-before I put it.

Chair: I think Mr Chambers wanted to comment.

Max Chambers: I was just going to echo that. It will be really important for the Secretary of State and the Ministry of Justice to have step-in rights where there is evidence of under-performance. That might mean that, as markets shift, the contract in an area should go to a neighbouring provider or another provider. In very extreme circumstances, the NPS-the national probation service-which will have significant national infrastructure, could potentially be an option. All of that needs to be thought through, to give the comfort that Parliament and the public would expect.

Q124 Mr Llwyd: What is the potential impact on competition of providers working on Government contracts across a range of services within the justice market in a particular geographical area?

Chair: You can see the dangers that can come with that.

Toby Eccles: There are dangers. The real danger lies if you do not require any form of data transparency. If, at that point, someone has knowledge of the prison, the probation service and everything-if all of that is in a closed system-it will be very hard for somebody else to compete against them in a sensible way in a future contracting model. I hope we will talk at some point about transparency, because in a certain sense what we really need is a prisoner’s dilemma around that whole area. If the market is set saying, "Actually, you all have to deliver outcome data on a time delay of, say, two years," everybody begrudgingly accepts it; everybody learns from one another; and everybody improves. If you do not require it, everybody keeps their cards very close to their chest and does not tell anybody anything. In a certain sense, the only way of making sure in those environments that you can have future competition is in the event that the data are out there.

Chair: In the event that?

Toby Eccles: In the event that the data are available, on the interface and on both pieces.

Q125 Mr Brine: We have touched on this a bit, but I will probe it a bit more. I will start with Mr Chambers. What are your observations on the Merlin standard and the Government compact in protecting the interests of voluntary sector organisations in such a large commissioning programme?

Max Chambers: Things like the Merlin standard and the voluntary compact will be really important. The evidence from the Work programme shows that those things are a necessary part of protecting their interests. There is also the other side, which is that the voluntary and community sectors need to be more commercial. They need to understand properly the arrangements they are entering into and to make sure that they are able to demonstrate the impact they are having, in order to make sure that they can take part in the delivery of the services but also, in this early phase, that they can partner with larger partners, to make sure that they are part of the piece. Both sides need to be looked at together.

Q126 Mr Brine: So you agree that they need to be more commercial, as the Secretary of State said. Mr Gash, you said that some will survive and some will fail. Isn’t there a headline there-"That is called the market."? At the moment, some probation trusts will survive and some will fail. Those that fail lead to the reoffending rates of those with sentences under 12 months that we currently have, that we cannot afford and that the Government say they want to address. I am playing devil’s advocate with you here, but you see my point. Surely, if they fail they will be shown up as having done so. There just needs to be a mechanism in place to see that that is addressed.

Tom Gash: I think that is fine. The question is, can the system overall cope with a large number of failures at the same time? That is the point that I was trying to make. I perfectly accept that it is a good thing, if you are going for a competition-based model, to have entry and exit. That is exactly what you want to free up. In terms of protections within the supply chain for smaller and voluntary sector organisations, when we looked at the Work programme, our assessment was that Merlin was not quite enough and that we need to think about other ways of ensuring that there is visibility on what is happening within the supply chain.

Rather contrary to the idea of the black box, where we do not mind so much and just monitor the outcomes, I think that is much harder to do for probation outcomes, in particular. We need to understand what the supply chain looks like, so it would be good to have transparency on whether people are subcontracting lots of work to voluntary sector organisations, partly so that people can spot the good voluntary sector organisations to work with, say, "Those guys are doing a really good job with that particular group of people," and start to employ them in their area-in the next-door area, for example. Transparency in the supply chain could be good not just for protecting voluntary sector rights but for making the market work more effectively overall.

Q127 Mr Brine: Mr Mulheirn, you made a pen gesture.

Ian Mulheirn: Can I come in on that point? I am slightly worried about the language of protecting VCS interests. I do not think we should be protecting anybody’s interests here-it is about reducing reoffending. That is the point that the Government have made, and it is really important to focus on it. However, what happened with the Work programme was that there was the same logic for having big primes-that they are able to bear financial risk-but there was no regulation on allowing that financial risk to be passed down to the front line, to the very smallest providers which, by the whole design of the system, were not in a position to bear that financial risk. That was damaging not just the interests of the VCS but the interests of the people trying to get jobs. The same is at risk of happening here.

The obvious logical conclusion of this is that payment by results should be for the prime tier and should not necessarily be allowed to be passed down to tiers below that. Sure, they should be hiring and firing according to who is doing well and who is doing badly, but that should be up to the prime in charge. In my view, very highly risky contracts should not be passed down to very small organisations.

Q128 Mr Brine: Mr Eccles, the idea of a level playing field doesn’t wash much with you, as you say in your blog.

Toby Eccles: No. You need similar access to finance and similar access to data. What we have at the moment is a data room that will be available only to the primes, so all of those they will be negotiating with will be flying blind. We have a timetable and a set of information that do not allow those to access finance in a reasonable time, because the social investment marketplace to support social organisations taking some of the risks that they might like to take is an emerging, new market. It needs a bit of time to work, unfortunately. We have been trying to push it along a bit more quickly, but it does not work. In order to do so, you also need the information.

In a certain sense, the Merlin standards are being undermined by the process. It is also relatively straightforward to fix. Give second-tier and third-tier providers access to the same data as primes, which should be relatively straightforward, and make certain parts of the process a little bit elongated, so that they have access to capital at the same time.

Q129 Mr Brine: The Chairman said that there are 70 organisations that have registered. What do you think is the misapprehension that they are generally harbouring? Are they all stumbling blindly into this process? Do some of them have their eyes wide open, or are some of them acting more in hope than in expectation?

Toby Eccles: I would say they are coming in with two or three different attitudes. I would have thought that the probation trusts themselves are coming in hoping to be mutualised and to work out an alternative solution, but not quite sure. There is the issue of their access to capital. If they need to be able to provide half a year’s worth of money up front, they do not have that, so they need to find somebody else to work with who has some money. So they start off with one hand tied behind their back. I think the private sector entities will arrive with long experience of working with the Ministry of Justice and thinking, "If we don’t know the information now, while that feels uncomfortable and will feel uncomfortable when we talk to our board, it will probably be even more uncomfortable for the Ministry of Justice at the end of negotiation, where that lack of information is a card that can be played late."

Q130 Mr Brine: Do you think their view is that it is better to be in the room-that they have got themselves in the room and are around the table?

Toby Eccles: Absolutely-and the number of options will decline.

Q131 Mr Brine: Does anybody else want to add anything to the checklist? If you were one of these organisations that are registered to bid, what would be on your checklist of things you wanted to know by Christmas?

Ian Mulheirn: The price of equity. There are all sorts of things.

Chair: I will move on directly to Mr McDonald.

Q132 Andy McDonald: Can I turn the panel’s attention to the risk of failure? Previous witnesses have expressed grave concerns about the pace of change. If this works wonderfully, there will be benefits, but there will be considerable implementation difficulties. Mr Gash has said previously that commissioners should understand the risks of introducing market mechanisms and should identify mitigating actions that can help. First, what do you think are the key risks of implementation failure for this programme? Do you think the MOJ has sufficient grasp of them? Secondly, to what extent can these risks be mitigated?

Tom Gash: I am sorry for diving in, but this is an issue I care passionately about. There is a real need to identify exactly what the risks are, but more than that, if this is going to be a professional process, it is about thinking about the probabilities of those risks materialising and costing the harm caused when they do. These are some of the risks that to my knowledge have not yet been thought through and should be asked about.

First, I would ask about what will happen to charitable spending on some of these ex-offender groups when people know that other people may be making a profit off it. How much is that charitable spending overall on these individuals and groups? That needs to be worked out and played through. I have spoken to some probation trust chief executives, who think that about 20% of their rehabilitation-focused spend is given in kind by charitable trusts and foundations. We need to know how trusts, foundations and charities will respond to the fact that others are making profit in this market and to think about that carefully.

We need to have estimates of the knock-on costs of introducing this new model of service provision for people with sentences of under 12 months.

Q133 Chair: Can I stop you for a moment? That is not categorising the risk of failure. They may be contributors to failure, but Mr McDonald’s question was about whether we now know what we consider to be failure. What are the failure risks?

Tom Gash: Do you mean provider failure or programme failure?

Chair: Programme failure.

Andy McDonald: Or both.

Max Chambers: Can I raise a question? I suppose this is a political risk and a programme risk at the same time; it relates to serious further offences. At the moment, this cohort, which is in the hundreds of thousands of offenders, goes on to commit very serious offences-murders, kidnaps and sexual offences-under the probation service’s supervision. I am not blaming the probation service for that. That will happen under the new system. It is important that everybody is aware of the reputational risk for the programme. With the best will in the world, it will probably be presented as somebody managed by a private contractor being involved in whatever the incident ends up being. There needs to be a level of maturity in the response to that. It would be a shame, having gone through this whole process, to let the programme be irreparably damaged by something like that happening early on.

Toby Eccles: The most obvious structural risk of the present programme is that we will end up with a cost-driven production, with no focus on rehabilitation in anything other than handing out some leaflets and hoping for the best because the cost envelope will not allow it. If you look at what the implications of that have been for the Work programme, there have been structural difficulties for some of the harder-to-reach groups, where the numbers simply were not right. That has meant that putting in any other work with that community has been very difficult because the response from the DWP and others has been, "Well, we have got someone who is contracted to do that, so we have no other money available," even if nobody is working with those people at all. In terms of getting in the way of innovation, change and progress, getting the structure for this wrong from an outcomes point of view will mean that it becomes much more difficult to work with those people than it is at the moment.

Ian Mulheirn: I would go further than Toby’s criticism. I do not think it is just about the cost envelope. There is obviously only a certain amount of money around at the moment, and we are not going to get buckets more. The question is, do you use the money you have to incentivise reductions in reoffending, which is the principle that lies behind this whole programme, or do you not? Currently, the structure of the payment incentives is completely perverse. It encourages cost cutting and, probably, increases in reoffending, which is the profit-maximising thing to do. At the moment, the incentives are completely topsy-turvy.

As to the question of whether the MOJ knows about them, initially when we pointed this out in the Social Market Foundation’s research, it denied those things, but in the market feedback and development considerations document that it put out recently it has acknowledged some of those problems. However, it has not yet gone nearly far enough towards addressing them. If we do not get that right, the whole payment-by-results approach is fundamentally flawed.

Q134 Andy McDonald: I turn to the issue of potential fraud. Where you introduce a market, there is that potential, of course. We have had recent experience of that with electronic tagging, so the component of confidence is a key issue. Perhaps we should be grateful for small mercies-unless Serco and G4S are cleared of these allegations, they will be prevented from bidding. Do you think the governance arrangements proposed by the Department are sufficient to ensure that it has robust controls in place to prevent fraud?

Max Chambers: I do not think anybody really knows quite what those governance controls are going to be yet. The only thing that I would say is that it will be in everyone’s interest to prevent fraud. I guess it will be a case of the MOJ working with the providers to minimise or, hopefully, eliminate that possibility.

Q135 Andy McDonald: So we do not have a view on whether, as we currently understand it, there are sufficient controls in place to prevent this happening again if one of these organisations comes into the market.

Max Chambers: The other thing that is worth pointing out is that the results for the discretionary payment come from the police. Although a lot of other service provision is paid for on a service fee basis, the reoffending result is externally verified by the police and the courts, from the police national computer. It is not a box-ticking prisoner escort contract about flows, volumes and whether a journey has taken place-the result is the result, so I guess you could argue that the contract is less amenable to fraudulent activity.

Q136 Chair: Do you think the Ministry of Justice has the capacity, given the evidence of past experience, including the interpreting contract, to guard not only against fraud but also against early signs of failure? Is the capacity there within the Department?

Toby Eccles: I think it is possible, but it is not presently used. At the moment, there is the idea of a black box in a lot of PBR models. Actually, what we want is a transparent black box. It is perfectly possible to have open-book accounting but still leave people flexibility as to what they do. It is perfectly possible to require people to state the level of investment they are going to make in rehabilitation but let them work out how to spend it. However, we are not requiring either of those things at the moment. You have the tools available to make it much more transparent. Also, if you go forward and say, for example, "If, after three years, you are not showing any statistical impact on reoffending, we are going to retender your seven-year contract," that is the sort of thing that could get quite interesting. It is possible both to change the incentives and to improve the transparency, I would have thought.

Q137 Andy McDonald: Related to that-Mr Eccles has already touched on it to some degree-is this business of how the Ministry can ensure effective practice on the part of new providers, to identify and disseminate that, and at the same time protect intellectual property. One company will say, "Hang on-I am doing pretty well here. I am getting a good return for my shareholders. This PBR is doing very nicely, thank you, and I am not telling you. You can all go to hell and let that service dwindle." How is that in the public’s interest?

Tom Gash: Can I come in on that? It is something I am passionate about.

Andy McDonald: Are there any precedents for it?

Toby Eccles: Absolutely, there are. The difficulty is that it is a question of "you show me yours and I’ll show you mine." What you do not want to start off with is a situation where you are the only transparent provider on the block. What you need to create is a data standard-these are the outcome data that you will provide. We understand that in the first three years you will be making an awful lot of changes and amendments to the system, and if you have people watching over your shoulder the whole time that will probably create an unnecessary pressure. So the first data points come out after three years and you delay data coming out by two years. The simple answer is that if you do not keep adapting, changing and improving what you are doing-

Q138 Andy McDonald: Are you serious? You would delay data coming out for a period of two years.

Toby Eccles: Outcome data.

Q139 Andy McDonald: Couldn’t that mask problems?

Toby Eccles: At the moment, we see none. From the Work programme, for example, we see no data because they are commercially sensitive. I am saying that, for example, at the point of retender you would have five years’ worth of data, from all providers, to improve what is happening. If you give out everybody’s data on a month-by-month basis, that becomes part of the news story and it becomes very difficult to invest in anything innovative. At the moment, the procurement process is very good for avoiding innovation. If you innovate and take it to Government, the Government say, "We have to run a procurement process," which will find a cheaper alternative to you to provide it, so there is no point in bringing innovation to Government. You want to manage this in such a way that you have a balance of a wish to invest in innovation but provide transparency. At the moment, in most of these contracts, we have no data coming out at all, so five sevenths’ worth would be a significant improvement.

Ian Mulheirn: It is worth pointing out that this is not a relative payment mechanism. It is not the case of one provider being up and the other one down-they are all paid relative to a baseline of historic reoffending in their area. Sure, they will want to hold on to their IP, but it will not affect-in the short term at least-their remuneration from the policy. I am not so worried about it myself.

Q140 Jeremy Corbyn: I am astonished by the answers you have just given to Mr McDonald. Are you approving of withholding data from the public?

Toby Eccles: At the moment, we have a situation where no data are made public.

Q141 Jeremy Corbyn: Do you think they should be?

Toby Eccles: Yes.

Q142 Jeremy Corbyn: All of them?

Toby Eccles: I think that the majority of them should be made public. You then have to ask the question, "If we have full transparency, what perverse incentives and behaviours will that create?"

Q143 Jeremy Corbyn: Don’t you think there is an overriding public interest in this, since it is the public who pay for the profits of these companies and the service provided, and they are supposed to be working in the public interest, not their commercial interest?

Toby Eccles: Let us clarify different sorts of data for a moment. One is, how much did the contract go for? Should we publish all of the contract values and everything else? My personal view is yes, we should. At the moment, we publish none of them. Should we publish outcome data as they become available, in terms of the levels of rehabilitation that have happened on the ground? Actually, those data take a little while to come through and are quite complex and fiddly. If anyone makes a difference in the first year, I will be very impressed, because they will be doing a whole bunch of other things as well. If we then create a great storm around the fact they are not being successful when they are all trying to do a range of complicated things, I think that would be a pity.

A window where people are able to continue to work but where data always come out in the end also avoids the perverse incentive-dare I say it?-that if there is pressure to publish the data month on month and you are right in the middle of it, you may create pressure for greater fraud than you would have had otherwise. I am trying to figure out a balance between these pieces, so that you get as many data as possible into the public eye but also incentivise investment in programmes and innovation.

Max Chambers: Can I say something about the difference between transparency to the public and transparency to the Ministry of Justice? There are plenty of data on the probation service that the Government do not publish as a matter of routine already. As long as the Ministry of Justice is aware of certain parts of data and information on delivery models and things that are commercially sensitive, that is one thing. That does not mean that you necessarily have to go the whole hog and publish absolutely every piece of data or delivery model or unit cost. That could damage the ultimate goal, which is making sure that you have a properly functioning marketplace. The other advantage of this is that Parliament-

Q144 Jeremy Corbyn: I am sorry; I thought the ultimate goal was reducing reoffending, not the marketplace. What are your priorities in this?

Max Chambers: The ultimate goal is to try to make sure that the reform is a success. A big part of that is making sure that you have a marketplace that can be built over time and can sustain itself.

Q145 Jeremy Corbyn: That is highly debatable.

Max Chambers: Obviously, the ultimate goal of this is to reduce reoffending. The best way of getting the maximum results is to have a marketplace where people can compete according to those results.

Q146 Jeremy Corbyn: Can I ask you a couple of questions on mitigating risks? When this issue came up in the House of Lords, the Government were extremely unwilling to reveal their own risk assessments, and they continue to be so. There are concerns there, but how much time do you think should be allowed for providers to gear up to delivery and become operational?

Tom Gash: My personal view is that you need more detailed information than anyone who is not a provider and does not have full information on the cost base of the staff and what savings you have to make in this model could currently get hold of. When getting to be operational, the main thing that providers will be doing-whether or not we think it is desirable-will be trying to reduce their cost base, which is normally done by changing staff terms and conditions or reducing their staffing within the probation services. That will be focused largely on the case management work load and delivering community interventions, not on anything to do with the reoffending part.

It is very important for the Committee to recognise where the money goes currently in probation and where it will go in future. The bulk of the money goes on delivering community orders and case management of offenders-effectively, referring people to different services. That is why I think it is very important to understand what will happen with the referral process.

One of the interesting things when you go to an outsource model is that sometimes the risk is that the incentives change and are geared up. If I am a private provider providing probation in a particular area, I want to refer my clients to every service possible that could help them, irrespective of the cost-effectiveness of that service overall for the taxpayer. That may be a good thing and lead to outcomes that are a lot better in terms of reoffending, because suddenly these people who have never been served before will get housing and get referred to drug and alcohol treatment and mental health. However, the Ministry of Justice needs to work with other Departments to think about how that will work in practice. What will happen to costs in the local mental health service and around drug and alcohol treatment, and will that be a good use of taxpayers’ money? Can people absorb that work load? Are they planning for additional capacity and so on? Thinking about the system effects will be-

Q147 Chair: Isn’t that a challenge to the whole policy-not just the privatisation policy but the whole rehabilitation policy? Whatever you do with the intention of ensuring that people do not reoffend involves precisely the things you have just said-housing, social support and things like that. That is a given for any proposal we come up with, isn’t it?

Toby Eccles: I think there are two aspects to this. First, I think there is one category mistake in the policy structure, which is that we are starting off by saying, "What is the size of the probation budget? Let’s cut it," and then, "How can we impact on reoffending?" Surely, what we are trying to do is create a criminal justice system that reduces reoffending. At the moment, we are not putting that on to the prisons at all. We are creating new private prisons. When we first started putting forward Peterborough and talking to private prisons about this sort of thing, they said, "That’s amazing. If we were asked to reduce reoffending while we were producing prisons, we would produce different prisons." That is the first element.

The second element is that the prison budget is 88p in the pound and the probation budget is 12p. The question really is, if you actually spent and invested heavily in reducing reoffending, would you be able to change and reduce your overall cost envelope for criminal justice, while reducing crime? To my mind, that is an open question that we are not studying, which is a great shame.

Chair: We are studying it.

Q148 Jeremy Corbyn: Have you done any modelling of the cost of reoffending-in the sense of the numbers that go back into prisons, which are far more expensive than probation work, shall we say?

Toby Eccles: There is the cost of prisons but also the cost of police and the cost of drug rehabilitation. Forget for a moment the wider societal costs. If you look just at the costs to Government, they are considerable. They are not being considered in the equation of how much to invest in probation or not.

Q149 Jeremy Corbyn: Can we move on to payment by results? The Social Market Foundation said there should be radical revision of the payment-by-results system. How would all of you want to change the payment-by-results system? Do you think it leads to perverse incentives to model businesses according to how they can gain maximum payment, rather than an effective real-time measurement of what happens to ex-offenders?

Max Chambers: I will start by saying that I agree with a lot of the points that Ian made in that pamphlet; hopefully, the Government will take note of some of those points. The big issue that we at Policy Exchange have also talked about is that we do not like the binary hurdle. We think that is not necessary.

Q150 Jeremy Corbyn: Could you explain what the binary hurdle is?

Chair: To everybody.

Max Chambers: It is the idea that in order to receive a payment for reduced reoffending, however you measure it, you first have to have reduced the proportion of offenders who have reoffended. So there is a binary decision-have you reduced reoffending from 60% of the cohort to 55%, for example? Until you achieve that binary measure, you cannot access other payments for reducing frequency, which we all agree is an important measure that needs to be included as part of the consideration. I expect that the Government will move on that-because providers will demand it, as much as anything else.

The other thing we always struggled with in the pilots-this may be difficult for people such as the NAO and, perhaps, for the Committee-is the idea that payment has to be attributed to statistically significant reoffending points. That produces quite strange results. If you reduce reoffending by 2.9% you do not get paid, but if you reduce reoffending by 3%, because that happens to fit with the statistically significant modelling, you do. That relates to Ian’s point. It means that, theoretically, you could allow reoffending to drift up by 2.9% with it not being statistically significant and, therefore, not be penalised for that. To address directly the implication of that-that providers will deliberately design delivery models to reduce costs and allow reoffending to drift up-I would be very surprised if anybody would deliberately do that. I am sure that would not happen, but you have to design a payment mechanism that does not allow that to be an unintended consequence.

Chair: Reluctantly, I will have to draw this part of the session to a close because we have another group of witnesses to bring in. We are very grateful to you for all the time you have spent with us this morning and for the interesting points you have made. Thank you very much.

Examination of Witnesses

Witnesses: Sue Hall, Chair, Probation Chiefs Association, Sebert Cox, Chair, Probation Association, and Oliver Henman, Head of Partnerships, National Council for Voluntary Organisations, gave evidence.

Chair: I welcome Ms Hall from the Probation Chiefs Association and Mr Cox from the Probation Association, both of whom are familiar to us, and Mr Henman from the National Council of Voluntary Organisations, which has a broader remit but has raised issues that are particularly relevant to our inquiry. I ask Mr Llwyd to begin.

Q151 Mr Llwyd: Good morning. My first question is to the Probation Association and the Probation Chiefs Association. In your view, what is expected of probation trusts in preparation for the transition to the new structures? What support is being provided currently by Government to support this? To what extent has this transition already commenced?

Sebert Cox: Before I get on to answer that specific question, I wonder whether I might refer back to the response that the Probation Association and the Probation Chiefs Association gave to the consultation in February. We stated then in our introduction that we thought that the probation service-the 35 probation trusts that currently exist-was in a very healthy state and that we saw no great need or urgency for it to be dismantled to enable the Government’s principal objective of reducing reoffending and bringing in people who-

Q152 Chair: We are familiar with this view, Mr Cox, but we are very anxious to find out what is happening at the moment. I would like you to address Mr Llwyd’s question.

Sebert Cox: I was coming to that. On the point of what is the expectation, we are now obviously in the process of implementation. As you know, the programme has been truncated from the original time scale, which was expected to be around October 2014, down to a date of 1 April 2014. Obviously, we have to explain to staff the rationale behind the changes, as explained by the Ministry of Justice. We have a process of trying to divide staff between the two new entities, transferring to the NPS and to the CRCs. We have to ensure that reallocation of cases is divided between the two different organisations.

We are getting some assistance from the Ministry of Justice, in so far as we are getting a lot of information-coming almost on a daily basis now-on the way it sees the programme operating. We also have a process of information that comes through a series of teleconferences. There are bits of information flowing around but not in sufficient detail that allows us to be able to make the necessary changes to build the new structures.

Q153 Mr Llwyd: The implication of what you have said is that this is being pushed through rather too quickly.

Sebert Cox: Had I been able to carry on a little bit in my introduction, I would have said that one of the things we said quite clearly was that we were more than a little anxious about the pace and timing of this implementation. This is quite a significant event. We have not been here before. As you know, the probation service has been nationalised before-in 2000 to 2001-but we did not change it significantly on the ground. People did not move from one place to another. This is a very significant event, in which we are going to expect quite a lot of upheaval to ensure that staff end up in the right place, at the right time and, more critically, that offenders also know who their supervising officers are to be.

Sue Hall: We heard the Government’s response to the consultation only on 9 May this year. The expectation is that by 1 April 2014-10 and a half months after the consultation response was published-we will have moved from being 35 probation trusts to 21 community rehabilitation companies and a national probation service. That is an order of change that would have been hard to achieve if it had started at the start of the Government’s term of office. To bring it in within two years of an election, with an expectation that this will all be achieved, that the transfer to the market will have taken place and that it will be up and running, feels like a huge, huge challenge.

The responsibility of probation trusts is to get to a point in April where the new national probation service and the community rehabilitation companies are in the system and trusts wind down, so we are not only moving to the new state but are also in the process of winding down the trusts. Most of the decisions and processes to make that happen are not in our gift in the first instance-they have to be designed centrally. We are finding that the amount of time available to us to do some of the really complex and demanding tasks that have to take place is shrinking hugely. We are now looking at four and a half months to 1 April. The pace at which we are being expected to work feels extremely risky, I would say, at the moment.

Q154 Mr Llwyd: In addition to that, how do you envisage the trusts’ core business proceeding during this time of flux?

Sue Hall: It was made clear to us at the start of this process that the one thing that should not suffer is what is called "business as usual"-that in the midst of all of this offenders needed to continue to be supervised responsibly and that work with partners in the community should continue to provide all the resources that are needed. That is where the heart of probation is. Probation staff are highly committed to making sure that the best possible service is delivered. We have just had the draft performance results out for the last quarter, and we are beginning to see that performance is starting to look a bit rocky. Part of that is because staff are uncertain and worried about their future, part is about the capacity in the system to manage all of these things simultaneously and part is that in some parts of the country we are now seeing staff leaving-staff are not waiting for the change to take place. We will keep business going but I fear that performance will begin to slip.

Q155 Mr Llwyd: On a tangential point, what sort of governance arrangements will be required to be undertaken by the trust boards for the new roles that they will be occupying vis-à-vis the community rehabilitation companies in the year before the new providers come on stream?

Sebert Cox: That is a very interesting question and one that we have been asking the Ministry of Justice for several months. To date, we have not got a satisfactory response. I know that it is thinking about it. We think that the safest way to transition from the current trust arrangements into the CRCs is to ensure that some of the non-executive directors-the people who are appointed by the Secretary of State-go forward, even if it is only for the relatively short time that they remain in public ownership. We think there is a lot of expertise within current trust members that could safely ensure that the right arrangements are set in place.

At the moment, there are two sets of things that we need to consider. The first is the decommissioning of trusts, because our contracts will cease on 31 March. As yet, we still do not know what the intentions are to decommission those services. It seems to us that it is right and proper that the current board structure should see things through and should account to Parliament for the way it has carried out its activities over the last year and, obviously, before that. It should ensure that its accounts, for example, are laid before Parliament, as it has done in the last year, certainly.

As regards the CRCs, we have absolutely no idea how the governance will work. We have heard that these are to be established as 21 commercial entities. One presumes that they will have a board, as a normal company would, but, at the moment, our only understanding is that they are considering some form of one, which may be national; I do not know whether that is to be a supervisory board or whatever it might be. There is certainly an expectation that the Ministry of Justice will continue to decide how those companies will operate, up to the point of share sale. It is very patchy at the moment. We are pressing for information on that because, with the expectation that boards will cease their activities on 31 March, like staff, some people already have their bags packed ready for exit. We think it would be a disaster if we lost the expertise that some of our members currently have when we could help that process to transition and ensure that the organisation gets a good start.

Q156 Mr Brine: I have some questions for Sue Hall. No offence to both of the other witnesses-I will come to you.

Sebert Cox: Thank you.

Mr Brine: You’re welcome.

Now that we have published this target operating model, I want to try to understand to what extent the Government have addressed-or not-your concerns about the impact of splitting responsibility for the management of offenders at the different levels of risk, with public sector probation services retaining responsibility for public protection. To what extent have they explained that to you?

Sue Hall: The target operating model gives a high-level explanation of how the system would work. Just for the record, PA and PCA remain very concerned about the way risk is being split. If the Government were ever willing to listen to that point, our strong advice would still be not to split offender management on the basis of risk.

Given that that is not the basis on which this is going forward, I have a couple of concerns. The first is that there is a way of talking about the CRCs as managing medium and lower-risk offenders. In fact, the public sector probation service is retaining only offenders who are showing a risk of serious harm-not a high risk of harm, but a high risk of serious harm. We do not yet fully know exactly what that will encompass, but the implication is that the CRCs will be managing a whole raft of offenders who are at risk of committing harm. We understand that to include domestic violence cases, complex mental health cases and child safeguarding cases. It is not the case that the CRCs will not be managing risk-they will be managing risk.

We have concerns that the interface-the point at which risk moves from high risk of harm to high risk of serious harm-has to be worked through. There has to be a good escalation process that takes the case back up from the CRC into the national probation service. Those processes are not in place yet, although it is recognised that they need to be. Where currently we have one simple model of an offender manager managing the offender’s entire journey through their order or licence, we now potentially have a bureaucratic system to put in place that ensures that information moves between two sets of organisations. We all know that points of data and information transfer are potential points of risk. There is a lot of work to be done to get that safely in place. I would say that we have not seen those processes yet.

Secondly, because CRCs will be managing high levels of risk, they will need to have trained, qualified specialist staff. The documentation on the target operating models makes it clear that the new prime providers will not be required to have qualified probation officers in the way that the national probation service is, although they can choose to. The only thing they will be required to do is to explain how levels of training and qualification are appropriate to the job they need to do. We think that is a mistake and that there should be a unified framework of qualified staff across both the CRCs and the NPS. With nurses or doctors, you would not dream of allowing one set of providers to make up their qualifications. There really should be a consistent, agreed set of qualifications across both sets of providers.

Q157 Mr Brine: Is the bottom line-which has been the concern from the start-that, exactly as you say, risk is not something that is very easily boxed off and defined? Risk escalates and de-escalates all the time. The skill set of a probation officer is to see that, spot that, prepare for that and act accordingly.

Sue Hall: Staff have said to me that they are worried, regardless of which side of the fence they go on. If they go into the CRC, they will not be writing reports for the court any more, so they will lose some of the skill set that they currently have. If they go into the NPS, by and large they will not be providing a lot of interventions; they will be doing a lot of public protection work. The overall package of skills that you currently have in staff will be diminished. I think that will be to the detriment, potentially, of both the NPS and the CRCs.

Q158 Mr Brine: What estimate have you made of any of the cost to the trusts of reconfiguring themselves into mutuals or other organisations able to bid? Earlier, we learned from the Chairman that 70 companies had registered an interest in bidding. Can you give us an idea of cost?

Sue Hall: That is really hard to do. I would like to make a couple of points about mutuals. At the moment, there are eight groups of staff-in some cases it is one single trust that is linked to a CRC, in others it is a sort of consortium-that have received Cabinet Office funding to get themselves to be bid ready. That is not the same as actually setting up a mutual, because probation trusts cannot set up mutuals at the moment. We cannot transfer staff into a new entity called a staff mutual; in case that mutual does not win the competition, the staff have to remain within the public sector. The process for us is really different from what it has been in the health service, for example, where mutuals have spun off, been nurtured and then been allowed to go forth into the marketplace.

What we have in those eight groupings-there are also some others that have not received Cabinet Office funding-is essentially small bid development teams working with strategic partners to get a bid ready and, at this moment in time, to put in a response to the PQQ that is currently out. There are no staff mutuals at the moment. Any costs associated with that will only really come into play if the small bid teams win the opportunity to become a mutual. So the answer is no, we do not have any idea of costs.

Q159 Mr Brine: Mr Cox, your moment has returned. Could you explain to me the process by which it is determined whether existing staff go to the NPS or go to the CRCs? Am I missing something in not putting that together? Do you know that?

Sebert Cox: I know that roughly.

Mr Brine: Go for it.

Sebert Cox: Since around August-September, we-that is, the Probation Association, because we represent the employers-have been working with the recognised trade unions to try to come up with a system that will enable the splitting of staff between the two entities. That has been a very difficult process, because we are reliant on information from the Ministry of Justice to help us flesh all of that out. Remember that, as we said before, this is not your normal employment relations activity, where you are talking about pay and conditions of service-you are talking here, effectively, about how you move people between two different organisations.

The simplest approach is to say to you that our understanding is that people who, for example, are focused on court work or working in a multi-agency public protection team or one of the high-risk areas will move to the national probation service. If you are working on a community payback project, for example-so you are doing some sort of intervention-you will move into the community rehabilitation company. It is roughly that sort of arrangement. On paper, that sounds simple but the reality is that, according to the MOJ’s own timetable, we should by August have got to a position where, on paper, that split could have begun.

Q160 Mr Brine: Could I stop you there? Thinking not on paper, but in reality about how trusts currently deal with risk assessment, is there a precedent now for separate staff being responsible for risk assessment and supervision?

Sebert Cox: There is not a necessity-

Q161 Mr Brine: In teams, the cohort around offenders, is there precedent for those teams to act in that way? All teams, in any office-and I am sure, in yours-are coalitions of skill sets that coalesce around offenders, aren’t they?

Sebert Cox: They are.

Q162 Mr Brine: Is there currently precedent for that to be split? When you sit around the team table to talk about assessment of risk, do you talk to Jim to my right and say, "Okay, Jim, tell us about assessment of risk."? Does that already happen?

Sebert Cox: I am not aware of that, but I would be corrected by my colleague Sue, who is obviously much more focused on operations. Teams do work in a generic sense, as you say. In a probation setting, it is certainly my understanding and expectation that the expertise around the table is made up by and large of people who are qualified and trained and understand that risk assessment basis, so-

Q163 Mr Brine: So it is a qualification and training issue. I think people had the view that these teams would sit in separate offices a train ride away, whereas in a debate in the House a couple of weeks ago, it was said that they would be sitting around one table. Is that wrong?

Sue Hall: There are a couple of points there. The first is your question about whether there is precedent. Yes, within probation services there may be specialists who deal with high-risk offenders. Is there any model that mirrors what the target operating model will be? No, there is not. Will people be sitting in the same offices? Yes, they will, for about two years, but the process will allow prime providers to move out of MOJ offices in due course. On day one, we will all be in the same office, although we may have moved our chairs around a bit, but the fact is that you will have one national structure managing half, or 40%, of the staff and one local structure managing the other 60% of the staff. Those management structures are not aligned in a way that will make the development of local processes easy.

Q164 Mr Brine: Do you hate this? You represent the Probation Chiefs Association-you represent probation chiefs, and their empires are being split up.

Sue Hall: Can I answer that in a different way? I can see what the problem is for the Secretary of State around short-term prisoners. We all see that. We all want more innovation and diversity in the system. Is this the most logical way to achieve it? We would say no. You could have asked probation trusts to take on the under-12-month group. You could have competed the under-12-month work separately. You could have looked for savings to do that from probation and, indeed, from the Prison Service-from the wider system. To move from trying to solve a problem that is quite specific to the wholesale dismantling and then reconfiguring of a service, bringing in a market, at such a pace seems to me irrational.

Q165 Mr Brine: So you hate it.

Sue Hall: I can see as well-

Q166 Mr Brine: Bear with me for one very quick final question. You are from the PCA. You meet Ministers in this Government and met Ministers in the previous Government, and you accept the need to bring in the under-12-month offenders. At any point-over lunch, coffee, meetings or whatever-have you said to Ministers in the past, "Do you know what the problem is here? We don’t supervise under-12-month offenders. Can we work out how to do that?"

Sue Hall: You would be interested to know that not just during the whole custody plus debate that we had with the last Administration but in my own trust, West Yorkshire Probation Trust, we have run through-the-gate services together with the Prison Service and the local authority out of Leeds prison, which will become a resettlement prison. We are not alone. Through integrated offender management developments all across the country, we are starting to work with under-12-month offenders, even though we are not paid for it by the Government. It is not funded-it is done through partnership consortiums to make it happen. So there is a precedent. In the course of this programme, we sent information about the through-the-gate scheme at Leeds prison to the centre and said, "This could be a model you might want to look at," so yes.

Mr Brine: For the record, Sue did not say she hated it-I said she hated it. She said it in her own way.

Q167 Jeremy Corbyn: Could I move you on to the question of the potential savings that could be achieved through this? Do you think it is possible to get the savings that the Secretary of State envisages and to get the results he wants?

Sue Hall: There are definitely savings that can be made from the system. Even with the current system of 35 trusts, we have been very good at making efficiencies. We have had something like a 90% real-effect cut since 2008-09. If you look at last year’s record, you will see that many trusts turned in quite significant underspends, on the basis that we thought we were going to have to make real economies of scale this year, in accordance with the plans that the former Secretary of State laid before us.

Q168 Jeremy Corbyn: Would you put on the record what plans you are referring to that the former Secretary of State laid?

Sue Hall: When Kenneth Clarke was still the Secretary of State, we were under no illusion that we would continue to have our budgets cut year on year and that we would need to continue to produce results as well as to start to engage in competition. We all worked very proactively on that basis. There are definitely further efficiencies that could be made by bringing trusts together. There is the notion of having 21 CRCs, as opposed to 35 trusts. You can see that there are back-office efficiencies and other efficiencies that can be made. However, if you had mandated trusts, taken off some of the shackles and said, "Go ahead and produce results, and be much more innovative than you have been able to be," because we have been very constrained, I think we could have produced the results. I am convinced of that.

Sebert Cox: I would support that. One of the things that we have argued for many years is that probation has never been free to run its own affairs. We have been under the auspices of NOMS; the Chairman will tell me that that has been discussed in this Committee. Effectively, NOMS calls the shots. In so far as trusts would like to be able to innovate and find ways in which we could make real cost reductions, we still have this overarching process that directs the way we should do things, rather than focusing on outcomes. We have argued that we really should be released from doing that. One of the things that we hear the current Secretary of State saying, which we applaud, is about reducing bureaucracy, but we would have liked to have seen that applied to trusts, so that we could have demonstrated our ability to bring in the under-12-month group, for example, and, potentially, still continue to make savings.

Chair: We are very familiar with the arguments that all of you might want to advance about what else could have been done or how it could have been done differently. It is particularly important that we are able to use what little time we have left to establish what may be happening-or may be about to happen-in this system, because that is what we are analysing.

Q169 Jeremy Corbyn: That was my point. What advice, support, help and conditions are being put on the establishment of mutuals by the Cabinet Office? Are you getting any practical help to do this?

Sebert Cox: Sue gave a response to that earlier. I am not personally involved in one. Again, I will make the point that Sue made-trusts themselves are not able to bid. The Cabinet Office has been helpful in providing some financial resource and some practical help to those individuals and organisations that want to be established as mutuals. I think that has been working quite well so far.

Sue Hall: I can say that that has been working well. The eight potential mutuals that are working with Cabinet Office funding feel very positive about the level of funding that has been received, which ranges from about £60,000 that has been given to Leicester and Rutland through to £103,000 that has gone through to the Cumbria, Lancashire and Merseyside probation trusts potential mutual. There has been a good level of funding, and it has bought consultancy that has been procured via the Cabinet Office. We understand there may be a bit more funding in the offing for the mutuals that are going through the process at the moment. That has been helpful.

Oliver Henman: In so far as the voluntary and community sector is concerned, there is some support available, partly through the Cabinet Office. In fact, NCVO is engaged in delivering master classes around how the sector can become more adept at negotiating contracts and participating in these kinds of payment-by-results mechanisms. We think our sector is very well placed to deliver some parts of the rehabilitation work, which it already does in the current infrastructure, but there are a number of concerns around how that payment will be measured. In spite of the skills, if appropriate payment is not flowing down the supply chain, many of the specialised smaller providers may well be lost at that end.

Q170 Jeremy Corbyn: Do you have concerns about smaller providers simply not getting into the action at all on this and getting sidelined by commercial interests?

Oliver Henman: I think there is a risk of that. This morning, I was on the phone to our member in Manchester, who was highlighting precisely that. The payment that is available is unlikely to be sufficient. Some of the prime providers are highlighting that this could be a risk in the sense that they will be unwilling to subcontract to the degree that we had hoped, simply because the payment-by-results mechanism does not incentivise them to work with those who are harder to reach, which is where we come in. We have the access to some of those who are perhaps harder to reach, but the way the payment is structured, there is more of a focus on delivering the court-mandated services-the core services-and less support on the rehabilitation side.

Furthermore, I would argue that smaller providers will have a delay in these first two years. We are hearing from many quarters-it has been mentioned already-that it will take a number of years for the new system to bed in, so any new deliverer that takes on these large contracts will have a number of undertakings under TUPE and so on to sort out first, before they can think about any subcontracting.

Q171 Jeremy Corbyn: Do you feel that pressure is put on because of the lack of capital and financial resources for very small organisations, some of which you represent?

Oliver Henman: Yes. On payment by results, the risk transfer in terms of any capital is a big concern, which was mentioned by the first panel. If a prime provider is working on a payment-by-results model and is expecting a small community organisation to do the work before it gets paid, that can be a very high risk, particularly if the flow of referrals and so on does not come through. It is a challenge for many organisations to be able to sustain themselves if they are waiting a year or two to get paid. We would argue that it is essential that smaller providers receive some element of grant funding or up-front funding to deliver those more specialised, community-based services.

Q172 Andy McDonald: Can I turn your attention to risk? We have been here before, not that long ago, when there were real issues around the failure to address the concerns raised about the ALS contract, which were flagged up early doors. The PA and the probation chiefs have produced their own risk register for trusts. Can you tell the Committee what key risks you have identified and whether you have shared them with the Department? If you have, do you have any confidence in any risk mitigation procedures that have been adopted as a result?

Sue Hall: We have named quite a number of the risks already, both in the previous session and in this session. It all hinges around the ability of the programme to have the design both completed and in place within the time scales that have been set. There are issues in terms of capacity from the centre and about managing the staff transfer safely and well and in a way that does not demoralise and demotivate staff, so that performance does not deteriorate and so on. We have been very clear about the risks that the programme is currently running.

We have been very plain in our discussions with the Ministry of Justice and have written to the Secretary of State outlining our concerns very directly. It is fair to say that at the moment there is a lot of activity around the programme. We are hopeful of a meeting with the Secretary of State in the near future to continue to discuss our concerns more fully. Very recently, we also had discussions with the lead people within the programme, who are beginning to understand the trusts’ point of view. It is reasonable to say that there is a big gulf between the way the programme is being experienced by trusts and the way I think it is being described at the centre. From a trust point of view, it feels unco-ordinated and as if it is not keeping to the time scales that we will need if we are going to do our bits of the business-

Q173 Chair: What time scale would you need? I know this is not what you want to happen, but, if it is happening, what time scale would you need to do it in what you would regard as a professional and satisfactory way?

Sue Hall: It is difficult to say, but personally I think you would probably have needed a couple of years to do this well, in terms of developing the design, testing it properly and having all the bits in place before you went live. Probation working in the community is such a complex undertaking that to bring in something very quickly risks unforeseen consequences in our relationships with our partners or in the way that the new changes impact on the whole system. I would have liked to have seen a more measured approach to the change.

Sebert Cox: When we started out on this process of implementation, if we had stuck to the idea that from 1 April-the spring of 2014-you would begin to see some shadow arrangements taking place, that would have given us more confidence that this was all doable, because one would hope to see a more seamless transfer from the current integrated state to the new entities of the NPS and the CRCs. However, now we are really up against it, so there are very serious concerns.

One of the things that we expressed to the Secretary of State in our letter only last Friday is that we really have to see the very bare minimum of things happen if you are to get to that point. In other words, we must ensure that staff are in the right place on 1 April, whether that is the NPS or the CRCs, and each offender must know to whom they must go for their supervision, whether that is in the CRC or in the NPS. More importantly, if there are breakdowns in the system-there is almost bound to be some sort of breakdown on day one-what arrangements are in place for breach and what arrangements are in place to ensure that the sentence of the court is being properly carried through? We believe those are essential bits of the framework that must be in place to start this off. Whether that is on 1 April or at some other time is really a decision for the MOJ, but we are now working very hard to keep pace with its programme, and it is slipping daily.

Q174 Chair: It would be helpful for us to have a copy of that letter.

Sebert Cox: I cannot see any reason why you should not see the letter we have sent to the Secretary of State.

Chair: If you could arrange that, we would be very grateful.

Q175 Andy McDonald: On a related point, you have had these sounding board meetings since March. To what extent do the trusts and the CEOs feel that their views are being taken into consideration on these potential implementation failures? Are NOMS and the MOJ listening to what you are saying?

Sebert Cox: The sounding board is a very interesting concept. It was created by the Minister of State, Jeremy Wright, as a forum for-literally-ideas to be sounded out. The probation representatives from both the PA and the PCA side of it are individual chief executives or chairs of trust boards. The idea is that they meet in a confidential setting so, in effect, nothing flows out. You might hear an anecdote or two of what was discussed.

From what we understand, it is one of those mechanisms where questions are asked, they are taken away by the MOJ and answered, but they may not be answered by the next meeting or in a very timely way; frankly, they may be forgotten. We would not say that we think the sounding board has been a great success in moving this process along. I might be doing it a disservice, because none of us here sit on it, but we certainly get the impression that it is not moving in a direction that enables there to be confidence that this programme is really being drawn up.

Oliver Henman: I have something to add from the voluntary community sector perspective. We have been invited in for conversations with the Minister of Justice. However, there still seems to be a lack of clarity, particularly around some of the potential subcontracting arrangements, that is quite alarming, given the pace at which we are moving and at which our members are expected to mobilise over the next few months. We will be seeking more clarity, particularly around the balance, which was mentioned before, between the binary and reducing reoffending rates.

Q176 Andy McDonald: I have a couple of specific questions for Sue Hall. What are the key factors that explain reductions in reoffending among the cohorts that the trusts have managed in recent years? Could you comment on that?

Sue Hall: Thank you for that question. One thing that has really bedevilled communications about reoffending statistics over the last few months is that there has been a lack of clarity about what the stats actually say. We hear lots of scare tactics in the press about the level of reoffending; indeed, we heard someone on the previous panel talk about people supervised by the probation service committing hundreds of thousands of serious offences, which is just not the case. For the record, since 2000, there has been a reduction of 9.2% in the reoffending of those offenders supervised under court orders by the probation service. When you compare that to those who have spent under 12 months in custody, where there has been a 7% increase in reoffending, you can see the impact that the probation service has made.

What does that come down to? I think we can tie it down to a number of factors. One is that we have become much more systematic. The offender management model is actually a good model, because it is based on assessment, sentence planning and review-on having specialist assessment and interventions that meet the needs of the sentence plan and doing that consistently across all offenders, in a way that can be measured. It is about being clear that resources should follow risk. It is not down to an individual probation officer’s personal preference about how they work-it is about saying, "These sorts of offenders receive the most resources."

It is also about the evidence base. We may not know everything we want to know about what deters people from offending, but we know an awful lot more over the last 10 years. The whole desistance research about what helps offenders desist from offending has really influenced the way that probation staff engage with service users-how they work with them to find relevant ways to address their offending. All of those things have come together to mean that we are a much more professional, evidence-led service than we were back in the 1990s. That has to be held on to at all costs in the new scheme of things.

Q177 Andy McDonald: Finally, to your knowledge, what progress has NOMS made on developing the national case management and risk assessment systems that will be required to underpin this system?

Sue Hall: We have all had a new case management system rolled out over the last year. It is called national Delius, or nDelius for short. That is now the basis on which the 35 trusts are operating. Clearly, when the new community rehabilitation companies are formed, there has to be a massive separation in the system between the information that is held by the two bodies. They will need to be able to have an interface with each other, but they have to be separate. That is a really challenging piece of work for the MOJ to put in place.

When the CRCs move over to the new prime providers, those providers do not have to use nDelius, but they do have to maintain an interface with it and a minimum data set. All of this feels very complex. Perhaps it would have been easier if everybody had remained on the same case management system, but there is a case management system that is in operation. It is making it work in the new environment that I think will be a challenge.

Where risk assessment is concerned, we are in a much less certain place. A new allocation tool is being designed that will help to decide who stays in the national probation service and who goes to the CRC. It will be about risk of serious harm. None of us has yet seen that tool. We know it is being developed, but, as far as PA and PCA are concerned, we have not seen the result of any trials or validation processes. We are concerned at how long it will take to get this risk allocation tool into place. We have learned this morning that it probably is not going to be the basis on which cases are divided in the first instance in April and will come in later down the road in 2014, but it is a key tool that we are very anxious to have sight of at the moment.

Chair: Thank you very much. We are very grateful to the three of you for coming in this morning, for responding to our questions and for the other ways in which you made information available to us before this meeting. If, afterwards, there is something you wish you had had the opportunity to say and want to let us know, do so, but we will be moving quite quickly on this issue.

Prepared 19th November 2013