Obfuscation Masterclass

The Public Accounts Committee had the opportunity last week of grilling the top officials at the Ministry of Justice regarding the TR omnishambles and for everyone who has been affected by this nightmare, it's well worth going through in some detail:-

Q6 Caroline Flint: The Justice Secretary recently announced his vision for a smart justice system. How does that differ from Transforming Rehabilitation, and when can we expect to get details of the smart justice system? 

Sir Richard Heaton: The Secretary of State will flesh out those ideas later in the year, although I cannot give you a precise date. How do they differ from Transforming Rehabilitation? Part of the theme of this session will be that we have learned an awful lot from Transforming Rehabilitation, which was an ambitious programme that revolutionised the delivery of probation in England and Wales and contained some inherent risks, many of which have materialised. Some of them have not—we managed to mitigate some of them successfully—but Transforming Rehabilitation carried in it some really significant delivery risks, which we have spent the last four years dealing with, managing and mitigating. 

The Secretary of State wants to return to a world where people who are passionate about probation can get on and deliver decent probation services and are not caught up in the extremely difficult and complicated landscape that characterises the current Transforming Rehabilitation project.

Q8 Caroline Flint: Okay. Let’s get on to Transforming Rehabilitation. That hasn’t happened as promised, has it?

Sir Richard Heaton: As I say, there are lots of things that have not gone as were originally imagined. Just before we get on to that, there are elements of the programme that have been successful. I would say the performance of the National Probation Service has on the whole been good and sometimes very good. Some of the bits we thought would be problematic have not been problematic. The engagement between the National Probation Service and the community rehabilitation companies has, on the whole, been better than we feared. The cohesion and national integration and relationship with the criminal justice bodies has been better than it was under the probation trusts landscape, and 40,000 people—the short-sentence offenders—have come under supervision for the first time. So there are things that have been delivered according to plan and according to the vision, but you are right that not everything has gone according to plan. I can give you my list or we can— 

Q9 Caroline Flint: Why don’t we pick it up in questions? There are three of us with a number of questions to ask. Just to get into some of the promises about what would be provided by this new way of looking at probation, it was expected that innovation would come hand in hand with the use of CRCs and others involved in this process, some in the private sector and some in the charitable sector. The Report’s findings indicate that that innovation has not happened in the way it was thought it would. Why is that? 

Sir Richard Heaton: I think the major reason for that, which is at the root of lots of things that have happened—Mr Spurr might want to come in on this, and you examined it last time we talked about this subject—is that the contracts did not deliver the volumes and therefore the income that the companies were expecting. Therefore, there was not the money available to invest in innovation that they had hoped. That is one reason— it is to do with the volumes and the cost structure. 

The other reason, possibly, was an optimism bias at the time. At the time Transforming Rehabilitation happened, everyone was very excited about the pilots that had happened in Doncaster and Peterborough, and it was thought that if only you incentivised companies to do great things on reoffending, they would get on and surprise us all and do great things. Contained in that projection was what now looks to be optimism bias, if I am honest. 

Q10 Caroline Flint: Just to push a bit further on innovation, innovation could be smarter information systems—IT—so that information about people’s offending gets from one place to another quicker than it has ever done in the past and people can do their jobs better. Innovation could be about new players—providers—coming into this arena. For example, one idea was that even if you had the CRCs, more people from the third sector— the charity sector—would play more of a role, but that has not materialised either. Are those cash problems or framework structure problems in the way the contracts were done? 

Sir Richard Heaton: I think there is a framework structure problem, but some of that innovation has happened. Correct me if I have got the numbers wrong, but I think there are 94 charitable organisations— voluntary organisations—directly involved in the delivery of probation services, and something like 800 whose services are signposted by CRCs or the NPS. There is some involvement. 

Q11 Caroline Flint: It is patchy, though. Would you agree? 

Sir Richard Heaton: Yes, it is patchy—exactly. By and large, the large charities are involved. The disappointment has, on the whole, been at the smaller end of the market. 

Q12 Caroline Flint: Why do you think that is? Why do those smaller charities not feel they can get an in into this arena? 

Sir Richard Heaton: Can you help me on this, Michael? 

Michael Spurr: There are two things. You are absolutely right that there has been much less innovation than was hoped for, and it is absolutely the case that there has not been as much engagement by the third sector— the social sector—as was planned. 

To give some context, the NAO Report talks about 159 voluntary sector organisations involved—11% of the total number involved in the whole sector. In context, probation trusts spent less than 3% of their budget on voluntary and third-sector provision. There has been a significant increase, but nothing like what was anticipated. The reason it has been more difficult for the smaller providers—we spent an awful lot of time trying to encourage and manipulate supply chains to use smaller providers—is that the reality is that many of the private-sector providers partnered with larger voluntary sector or not-for-profit organisations. They generally wanted to deliver the services themselves because in efficiency terms it was easier for that to be done. 

The risk element was a worry for many of the smaller charities involved in it. Then, because the money that had been anticipated early on was not available because of volumes and case mix, the providers squeezed their supply chains to some degree, and that did not provide the opportunity for some of the smaller, bespoke charities, which we would have wanted to see involved, to get involved. 

Q13 Caroline Flint: One of the main objectives of this new system was to try to prevent reoffending. While the figures tell us that by March 2017, midway through the reforms, there was an overall 2.5 percentage point reduction in the proportion of proven reoffenders since 2011, there has been a massive increase in those who are reoffending doing so many times. 

Sir Richard Heaton: There has been some success, but some warning about whether measuring reoffending is really the best way to measure the performance of providers. We set a target that over the life of the contracts the binary rate—the first one you mentioned, the number of people reoffending—would reduce by 3.7 percentage points, and it is now on something like 2 to 2.3 percentage points. That is partial good news, but there is a feeling now that reoffending is too random or arbitrary a rate to hold CRCs to, because it is affected by so many different factors. I claim some success in that the number has come down by 2 or 2.5 percentage points, but in reality I don’t think it is a true measure of a CRC’s performance. 

We see that very markedly on the frequency rate—the second rate. It is true that the number of offences per offender has gone up considerably. That is partly because of case mix; there has been a smaller volume and the people who are coming through the courts tend to be the more recidivist offenders; therefore the frequency rate has gone up. It would be wrong to lay that at the door of CRCs, because it is about case mix and it is a trend that was already visible before the CRCs took over, which is why we have re-baselined it in the recent contract changes. The reoffending rate gives us a clue that things are not going as well as we had hoped, but it is not a complete picture of performance. 

Q14 Caroline Flint: If measuring in terms of reoffending is too random, why was it used in the first place? Sir Richard Heaton: Random is the wrong word. Caroline Flint: Why did they use it, and what do you know now? What other measurement would you use now? 

Sir Richard Heaton: I will answer the second bit first: measures such as success in getting an offender into housing or on to universal credit, success with employment, success with mental health programmes—those are proxies, but they are closer to what the CRC has within its power. 

Caroline Flint: I totally understand— 

Q15 Chair: Can we bring in Mr Spurr? I think he wanted to come in on this, and that might be quite useful. 

Michael Spurr: I just want to give some context. One of the main aims of this reform was to use a payment-by-results mechanism to drive innovation. In measuring results, the reoffending rate was chosen because that was what we wanted to achieve. The binary rate is relatively straightforward: do you have fewer people committing offences? That has been reduced. 

At the time, the view was that we should also take account of the number of offences, primarily because we know that reoffending is like any form of addiction—often people stop over time; they do not just stop immediately. There was a fear, learning from things that happened with the DWP, for example, that if you just had a binary rate—“Yes or no, this person has reoffended or not”—you would have too much cherry-picking and no work would be done with people who immediately reoffended because we would then give up on them. So the frequency measure was included. Virtually everyone at the time, myself included, thought that that was the right thing to do. 

There is a lag in data, so when we were thinking this through we were not aware of the data from 2011 onwards, and prior to that the frequency rate had been going down. Since then, it has been going up. We do not quite understand that, but we think, as Sir Richard says, that some of it is about the nature of people coming into the system. Some of it is about the good work at the time by the police and the probation service on intensive integrated offender management, where we effectively targeted prolific offenders and so on, and the frequency rate was going up. 

Two things we have learned, which come out in the NAO Report, are that a payment-by-results mechanism on reoffending, with such time lags, is not a good mechanism for driving improvement, and that other factors significantly play into reoffending, and particularly into that frequency rate. That particularly includes police behaviour, which we were not able to control for sufficiently in where the CRCs were. 

Finally, it is important for context to say that we largely spend on probation today what we were spending 10 years ago, in cash terms, but we have a larger and more complex caseload. As is set out in the NAO Report, there were 17,000 fewer reoffenders between 2011 and 2017 and about 33,800 fewer “reoffences”. In absolute terms, reoffending has reduced, but by nothing like what we were hoping to achieve. 

Q16 Caroline Flint: I accept what you say about those figures, but the report also outlines in paragraph 7 that “just six of the 21 CRCs achieved statistically significant reductions in the proportion of reoffenders in all offender cohorts”. Again, the performance rate is very patchy. 

Michael Spurr: Absolutely, I accept that. I was trying to put that in context. I agree with the NAO Report. This programme has not achieved what we wanted it to. However, it is important to have some context. It is the case that, in absolute terms, there are fewer reoffenders and “reoffences” than before we started this in 2011, as the Report sets out, but it is nothing like what we wanted to achieve. 

Q17 Caroline Flint: Sir Richard, you pointed to the idea that problems with housing and other services not being available to people are contributing to their getting into crime again and reoffending. Do you think that this is another example of the pretty poor track record of procuring and managing the sort of outsourced services that are needed to provide for those needs and to avoid reoffending? 

Sir Richard Heaton: If the question is about the procurement and management of these CRC services, I think my Department procured and implemented this programme well. The issues we have talked about were inherent risks and design features of the policy. I will be quite defensive: I do not think that there was a flaw in the way in which we managed and implemented these contracts. On the contrary, in the two or three years since we started talking about this subject, the degree of commercial expertise and nous that has been brought to bear on these really complicated contracts—keeping them afloat, providing stability and then a managed termination—has been first-class Government commercial work. I do not think I have anything to apologise for there. The flaws were at inception. 

Q18 Chair: Which is convenient because, time-wise, you were not there at the inception, but you were there for the bits that you describe— 

Sir Richard Heaton: I’m not saying this to shirk any responsibility; I am happy to speak for the Department. However, we have thought long and hard about how this has not delivered. With my hands up, I cannot say that the commercial capability of the Department is the element at fault here. 

Q19 Caroline Flint: There clearly has been a poor understanding by the Ministry of CRCs’ cost base. The original assumption was that 20% of CRCs’ costs were fixed, but in June 2017 that was amended to allow for the average fixed costs reported by CRCs of 77%. Why was a decision to terminate the contracts made so late when the Department knew in 2017 that the contracts were in serious trouble? 

Sir Richard Heaton: First, if you’d asked us to terminate the contracts in 2017, I think the honest answer would have been: terminate to what? We couldn’t leave a vacuum in the provision of a crucial public service, and I do not think that we were in a position to step in, nationwide. There really was that question. 

Secondly, I do not think that we could have afforded to terminate; the contracts didn’t allow for termination at convenience. That would have been very expensive. The money we injected instead was a better deal for the taxpayer. 

Thirdly, we were a couple of years into a major Government outsourcing, and our job was to see it through, which we did. Our job was to recognise the contractual flaws, correct them where we could and, where we had to, to put money in to keep the project going. This was the delivery of a major public service and it was a brand new reform, and our job was not to cut our losses and bail out at the first opportunity. 

Q20 Chair: When you say “see it through”, you sound like you are talking about seeing through the outsourcing of the contracts, not the service. Could you clarify what you were seeing through, in your eyes? 

Sir Richard Heaton: Our job was to manage the contracts successfully and get the outcomes that we had contracted for. 

Q21 Chair: You have just mentioned the outcomes, so it was, in your view, about getting the outcomes, not just managing the contract successfully. 

Sir Richard Heaton: Yes, it was. 

Michael Spurr: If I may, I will add one point to that. The other key point was that we had not got the outcomes from the frequency payment-by-results mechanism at that point. That made a decisive difference to the profitability of companies, which meant it was clear, when they were out, that the companies were not going to be able to deliver to the level of service that we would have wanted. 

When we did the adjustments around the fixed and variable costs, that wasn’t absolutely certain, and I would say that it would not have been possible for us to go to them at that minute. They were waiting for those outcomes. Those were annual figures, so we had not got all of that data. That is why we didn’t look, at that point, to curtail the contracts early. 

Q22 Caroline Flint: Isn’t commercial acumen part of the policy design process? Surely that should have been taken into account before the policy launch. 

Sir Richard Heaton: Do you mean the fixed and variable issue? 

Q23 Chair: No, the whole thing. You were just describing how successful the commercial stuff had been. 

Sir Richard Heaton: Had the projects had more time to deliver at the earlier stages—it is not just design; it is about the timetable that the project set itself—had we been given another year, for example, in which to run the National Probation Service and the CRCs in shadow form, we would have spotted the gap between the fixed and variable, which we had failed to spot when we were contractualising. There were elements of this that were done—I don’t want to use headline words—at breakneck speed, if I am honest, and that was probably part of it. 

Q24 Caroline Flint: Was there any effort, given those concerns, which must have been felt within the Department, to seek a ministerial direction? 

Sir Richard Heaton: No direction was given, otherwise it would have been on the public record. I don’t believe a direction was sought. 

Michael Spurr: I was on the programme board at the time, so I can answer some of that. 

Q25 Chair: Yes, tell us what happened at the time. 

Michael Spurr: A timescale was set to deliver these reforms by 2015. There was a rationale for that, which was about taking the market with us, and the market believing that the reforms were going to be delivered. I guess—let’s be frank about it—politically, with a potential election that year, it was about clarity for the market that these reforms were going to go ahead, and we were going to invest a lot of money in it. 

The aim was, therefore, to deliver the programme prior to the election. There is no question about that. As the NAO Report said, primarily we did deliver to that timescale and we implemented the changes, even at that breakneck pace, pretty well, given all of those issues. 

I would have liked a longer period running the CRCs under public ownership so that we could understand the cost base much better than we did. But we did engage with the market and we engaged with probation trusts. Our view was that we had enough evidence to be able to proceed at that point, and that those risks could be managed. We were wrong about that. In reality it should have taken longer. We did go too fast, I agree, but that was the rationale at the time. The risks were identified. 

Q26 Caroline Flint: And was concern voiced about the breakneck speed? 

Michael Spurr: Yes, it was clearly a risk at the time. In terms of the programme planning, this was a major change and transformation and, of course, those issues were being discussed at programme board level, as we were implementing the changes. 

We delivered the actual implementation and the transition well, I think. It is a first-generation set of contracts, so there was over-optimism on the provider side in a whole range of ways and over-optimism, I guess, about what could be achieved by outsourcing in this way. The volume changes, in particular, were not as anticipated.

As we have talked about before, it wasn’t just that community orders were coming down—there had been evidence of that previously—but it was the switch in types of orders. Particularly, one of the key elements of the programme of payment by results was to encourage innovation and give providers as much freedom as possible to deliver that, so there was light specification of what they had to do. We therefore paid less for the orders that were like that—the rehabilitation activity orders that are set out. Those are the ones that increased in number against the ones we would have paid much more money for, such as accredited programmes. That, primarily, had the big impact. 

Caroline Flint: It distorted the whole— 

Chair: We discussed that when we were at the prison in Doncaster; I remember it very clearly. We acknowledged in our report that the transition was the bit that did go relatively smoothly. 

Q27 Caroline Flint: Mr Spurr, can I just come back to the third sector? One of our recommendations has been about more transparency, setting out to the sector the opportunities and what is available. Your Department is not the only one that has had problems with this; DWP has had problems when it looked at engaging the third sector to provide advice for people to get into work and stay in work. Is there transparency now? 

Michael Spurr: We have tried very hard; we commissioned Clinks, for example, to look at what the impact of this had been on the third sector, and we are trying to take lessons from that. There is more transparency, and we recognise that in one sense, with all of this, the more risk you transfer—volume risk and cost risk—the harder it is for third-sector, not-for-profit, social-sector organisations to play in. That is a huge lesson out of this programme. 

Q28 Sir Geoffrey Clifton-Brown: Sir Richard, I am afraid I cannot let you get away with the statement that this contract was well procured and that it would be, in your words, wrong to blame the commercial department. Paragraph 19 of the NAO Report says, “Although the number of reoffenders has reduced, the average number of reoffences they commit has increased significantly”—the point Ms Flint has been questioning you on—and then it comes out with a damning statement: “Transforming Rehabilitation has achieved poor value for money for the taxpayer.” That is on page 10. In NAO terms, that is about as damning a statement as it can come up with, so how do you justify your statement? 

Sir Richard Heaton: I do not dispute the statement in the NAO Report. This programme has not delivered for the taxpayer all the outcomes that the public would expect. The only point I was making was that it would be unfair to characterise this as a botched procurement, because I don’t think that is at the root of the issues we are talking about. I am not saying that this was a successful programme that was well delivered in every respect. This programme has not delivered the outcomes that the taxpayer should have expected from it, and we are trying to explore some of the reasons. I am just saying that it is not a narrow failure to contract. That is the only point I was trying to make, Sir Geoffrey. 

Chair: We will pick up on some of the contractual issues a little later.

To be continued.....