1.On the basis of a report by the Comptroller and Auditor General, we took evidence from the Ministry of Justice (the Ministry) and HM Prison and Probation Service (HMPPS) on progress with the Ministry’s Transforming Rehabilitation reforms. Probation services are designed to protect the public by supervising offenders in the community, overseeing their rehabilitation with a view to reducing reoffending, carrying out proper punishment of offenders, and ensuring that they understand the impact of their crimes on victims.
2.In June 2014 the Ministry introduced its Transforming Rehabilitation reforms. Its aims were to: open the market to a range of rehabilitation suppliers from the private and voluntary sectors, encourage innovation, paying suppliers by results for reducing reoffending; and extend statutory rehabilitation to those offenders serving sentences of less than 12 months. It dissolved 35 self-governing probation trusts and created 21 Community Rehabilitation Companies (CRCs) to manage offenders who pose a low or medium risk of harm. It created a public sector National Probation Service (NPS) to manage offenders who pose higher risks. In February 2015, the CRCs were transferred to eight, mainly private sector, suppliers working under contracts, managed by HMPPS, that were to run to 2021–22. The Ministry considered that its reforms would deliver reductions in reoffending corresponding to £10.4 billion net economic benefits to society over the seven-year period of the contracts.
3.When we previously reported on the Ministry’s rehabilitations reforms in September 2016, we concluded that the Ministry was yet to bring about the ‘rehabilitation revolution’ it promised. In March 2017 the Ministry was forced to adjust its contracts with CRCs because they were forecasting combined losses of £443 million across the remaining life of the contracts. We reported on the CRC contracts in March 2018 and found that the Ministry urgently needed to ensure CRCs improved the quality of the services they provide and deliver on their promises of innovation. In July 2018 the Justice Secretary acknowledged that the quality of probation services being delivered was falling short of expectations and announced that the Ministry would terminate the CRC contracts 14 months early, in December 2020. In February 2019, Working Links, the owner of three CRCs, went into administration, followed by Interserve in March 2019, the owner of five. The Ministry has consulted on its future model for probation, but it has not yet made decisions about what will replace the current failing system.
4.The Ministry expected CRCs to achieve a modest reduction of 3.7 percentage points in the proportion of proven reoffenders, over the contract period from 2014–15 to 2021–22. Overall, from 2011 to March 2017, there was a 2.5 percentage point reduction. However, over the same period, the average number of reoffences per offender increased by 22%.
5.The Ministry acknowledged that Transforming Rehabilitation was an ambitious programme that has not delivered the outcomes that the taxpayer would have expected from it. The Ministry told us that the policy contained inherent risks and design features and that “the flaws were at inception”. The reforms combined the introduction of CRCs and the payment by results model, splitting the probation service between CRCs and the public sector NPS and extending statutory supervision of offenders sentenced to less than 12 months. The Ministry acknowledged that the programme carried some significant delivery risks, which it has spent the last four years “dealing with, managing and mitigating.” Supporting and exiting the CRC contracts early cost the taxpayer at least an additional £467 million and the NAO concluded that Transforming Rehabilitation has achieved poor value for money for the taxpayer. Despite this, the Ministry told us that it thought it had procured and implemented the programme well and that it believed the work it had done to stabilise and manage the termination of the contracts had been “first-class Government commercial work”.
6.We previously reported that the Ministry’s failure to pilot or properly understand its fundamental changes to the probation system led to CRCs not investing in probation services, which have suffered as a result. The Ministry attributed the decision not to pilot the programme to the desire to “get on with it” and “keep momentum” to deliver the reforms before the 2015 election. It explained that this meant that elements of its reforms were delivered “at breakneck speed”. HMPPS told us that the rationale for the timetable was to give the market confidence that the reforms were going to take place. It admitted that it had implemented the reforms “too fast” and had wrongly believed that it had all of the evidence it needed and could manage the risks. HMPPS and the Ministry acknowledged that it would have been better if they had tested some aspects of the programme before the reforms went live, in particular they highlighted that they would have benefited from having a better understanding of CRCs’ costs, the CRC and NPS relationship and how the courts would make use of the various sentencing outcomes at their disposal. The Ministry said that if it had been given another year to run the NPS and CRCs in shadow form it would have spotted problems with its assumptions about CRCs’ costs. One of the main aims of the Ministry’s reform programme was to encourage innovation. The Ministry told us that from early signs in trials it conducted in Peterborough and Doncaster prisons, it believed it had some evidence that suppliers could reduce reoffending using innovative methods incentivised by payment by results. However, these trials were considerably different to the model it pursued under its reform programme. The Ministry acknowledged that at the time it designed its reforms it suffered from an optimism bias about how easily it could incentivise innovation.
7.The Ministry told us that all the checks, balances and assurances available to a major government project gave the Transforming Rehabilitation Programme the green light. These included the Major Projects Review Group and the Treasury. Despite difficult decisions about whether it was going too quickly and whether it should be piloted or tested, the decision was taken to go ahead with the programme. HMPPS told us that its programme board recognised the risk of implementing its reforms to such a tight timetable. However, the Ministry did not seek a ministerial direction in relation to its concerns about the timetable.
8.CRCs are paid for the types of activity they undertake rather than the volumes of offenders they supervise, meaning their financial health depends on carrying out types of rehabilitation work which attract payment. The CRC contracts did not deliver the volumes, and therefore the income, that CRCs were expecting, meaning that they did not have the money to cover their costs and to invest in innovation. The Ministry expected to pay CRCs up to £3.7 billion over the life of the current contracts to 2021–22. However, by August 2018, it forecast that it would pay CRCs £2.3 billion through to December 2020 when the contracts will now end. In letting the contracts, the Ministry only modelled a potential 2% fall in activity volumes, but by the first quarter of 2017–18, the fall in activity ranged between 16% and 48% less than expected. In addition, the Ministry had a poor understanding of CRCs’ cost bases. It originally assumed that 20% of CRCs’ costs were fixed, but in June 2017 the average fixed costs reported by CRCs was 77%. This meant that CRCs were placed under significant financial strain when volumes of work were lower than expected, as they could not reduce their costs by as much as they needed to.
9.The financial pressures on CRCs created by the lower volumes of work were exacerbated by the payment by results mechanism. We have previously warned about CRCs’ increasing dependence on payment by results and the risks to the financial sustainability of CRCs. The Ministry’s payment by results mechanism was based on proven reductions in reoffending after two years. The first set of annual reoffending statistics, published in January 2018, meant that CRCs incurred total liabilities of £9.3 million. The Ministry’s modelling suggested that CRCs’ were likely to incur total liabilities of £146 million if the contracts continued through to 2021–22. The Ministry said that the ‘black box’ design where the Ministry paid for the outcomes it wished to achieve and assumed CRCs would be incentivised to do “whatever it takes” to achieve them, did not work and put core services at risk. It accepted that payment by results assumes that the system is willing to accept zero intervention, which would not be acceptable for probation services. As a result of its payment by results mechanism, the Ministry did not specify how CRCs should provide some services. By February 2019, HM Inspectorate of Probation had rated eight CRCs as ‘requires improvement’ and one as ‘inadequate’ under its new inspection framework introduced in April 2018. HMPPS acknowledged that CRCs are being inspected against standards that they were not required to meet under their contracts.
10.The Ministry explained that it now believes that reoffending is not a true measure of the performance of CRCs because it is affected by so many different factors. For example, the number of reoffences per offender has gone up by 22% from 2011 to March 2017, and this is partly because those coming through the courts tend to be those who are more likely to reoffend, which is not within the control of the CRCs. The Ministry told us that it now considers other measures to be better for measuring CRC performance, such as the number of offenders obtaining access to housing and universal credit, and successful employment or mental health programme outcomes.
11.In June 2018 the Ministry commissioned work which found that CRCs faced collective losses of £294 million over the life of the contracts compared to expected profits of £269 million when the CRCs had bid. Following this, it took the decision to terminate CRC contracts 14 months early, in December 2020. On 14 February 2019, Working Links and the three CRCs it owned went into administration. The Ministry implemented its contingency plans, by transferring staff and services from the three CRCs to Kent, Surrey and Sussex CRC, owned by Seetec. The Ministry told us that it was confident in its contingency plans in the event of any future failure of larger suppliers, such as Interserve, which owns five CRCs. HMPPS said that it had a range of options, including stepping in itself or using other suppliers. The latter option is subject to a cap, which prevents any one parent company controlling more than 25% of the market. After our evidence session, on 15 March 2019, Interserve went into administration. The Ministry has not yet announced what impact, if any, this will have on the CRC contracts owned by Interserve.
12.The Ministry told us that it has learned a lot from its Transforming Rehabilitation programme. The Ministry and HMPPS told us that the National Audit Office’s report provided a clear framework of what it must do differently in the future and that there was “not a single lesson in the report that we will not take on board.” The Ministry has consulted on the future of probation services and plans to procure second-generation contracts in April 2019, but it has not yet set out its plans. It stressed that it does not yet have a blueprint. The Ministry said that it wants its new contracts to be simpler to avoid the sheer complexity of its current contracts. It also said that it was determined to fix the fact that CRCs and the NPS do not have coterminous regions if it has another generation of contracts of the same kind of model. The Ministry told us that it wants the probation market to remain mixed between the private and voluntary sectors and the government. It told us that the market of probation suppliers remains ‘engaged’ and that 40 organisations had attended its market engagement events, in addition to VSOs.
13.The Ministry told us that one of the lessons from Transforming Rehabilitation was the danger of ‘heroic’ timetables. However, the Ministry has set itself a challenging 15 month timetable for the procurement process for its new contracts for probation services. The Ministry told us that it was aware of the hard deadline for the termination of its contracts in 2020, and that it was working on contingencies that would give it more time. It said that while it did not have time to pause in implementing its new system, it would “metaphorically pause” to think about how it proceeded. It conceded that it ‘might’ pilot some aspects of its new system.
2 C&AG’s Report, para 1
3 C&AG’s Report paras 2,3
5 Committee of Public Accounts, Government contracts for Community Rehabilitation Companies, Session 2017–19, HC 897, 21 March 2018, pages 3–4
6 C&AG’s Report, para 4
7 C&AG’s Report, para 3.13; Urgent Question, HC Deb, 18 March 2019, c834
8 Q 114; C&AG’s Report para 4
9 C&AG’s Report, paras 1.3–1.4
10 Q 6, 17, 28
11 C&AG’s Report, para 1.1; Q 6
12 C&AG’s Report, para 3.6; Qq 17, 19
13 Committee of Public Accounts, Government contracts for Community Rehabilitation Companies, Session 2017–19, HC 897, 21 March 2018, p5
14 Qq 23, 25, 54
15 Qq 23, 54, 65
16 Qq 9, 66–67
17 Q 55
18 Qq 24, 26
19 Committee of Public Accounts, Government contracts for Community Rehabilitation Companies, Session 2017–19, HC 897, 21 March 2018, p5
20 Q 9
21 C&AG’s Report, paras 2.12, 2.15
22 Q 19; C&AG’s report paras 2.10, 2.16
23 C&AG’s Report, para 2.17
24 Committee of Public Accounts, Government contracts for Community Rehabilitation Companies, Session 2017–19, HC 897, 21 March 2018, p5
25 C&AG’s Report, paras 2.11, 2.17
26 Qq 33, 70
27 Qq 30–31; C&AG’s Report, para 2.20
28 C&AG’s Report, para 10
29 Q 43
30 Q 13; C&AG’s Report, para 1.4
31 Q 14
32 C&AG’s Report, paras 15, 18
33 Qq 91, 94
34 C&AG’s Report, para 3.13
35 Urgent Question, HC Deb, 18 March 2019, c834
36 Q 6
37 Qq 101–103; C&AG’s Report, para 4
38 Qq 114, 119
39 Qq 106, 111
40 Q 2
41 C&AG’s Report, para 3.15
42 Qq, 99, 102, 105
Published: 3 May 2019