A think tank’s analysis of the government’s new payment-by-results model for probation services has shown that private and voluntary sector organisations that take part may actually lose money if they succeed in cutting recidivism.

The government is pushing ahead with controversial plans to open up probation services to non-state providers in 21 contract areas across the UK.

The Social Market Foundation (SMF) has used financial modelling to examine the payments that providers would receive according to a variety of results achieved.

Its analysis found that, on generous assumptions, organisations would have to achieve a reduction in reoffending of around 4 per cent to be moderately certain of making any money at all.  Any lesser improvements would result in financial losses.

In fact, providers could make more money by simply cutting costs and allowing reoffending to increase by up to three percentage points, the SMF’s report states.

Flat payment zone

This is due to a “flat payment zone” built into the model to protect the government against accusations of paying for apparently good reoffending outcomes that are in fact the result of a statistical fluke.  

Such “negative performance incentives” could be even higher in small contract areas, the SMF warns.

Ian Mulheirn, director of SMF and the author of the paper, said that many elements of the proposed scheme are good, but “payment proposals look set to wreck the financial incentives that providers and investors need to make this scheme work”.

“By designing the system with a flat payment zone, the Ministry of Justice has effectively made it all but impossible for providers to achieve results good enough to get paid, without investors taking on impossibly high financial risks," he said.  "The result will be that they simply won’t try.”

The SMF suggests removing the flat payment zone from the model in order to ensure service providers are properly incentivised to cut recidivism rates.

MoJ: utter nonsense

But the Ministry of Justice had no truck with the report. Justice minister Jeremy Wright said:  “It is utter nonsense providers will be penalised for trying to achieve results. This report seems to recommend giving providers an easy ride and handing over taxpayers' money for negligible improvements.
  
"As the public would rightly expect, our targets are challenging: we want to see providers achieve a real reduction in reoffending, delivering long-term and sustained benefits across England and Wales, and making our communities safer.”