Payment by results in tackling youth crime

Notes from a seminar held on Monday 24th October 2011

at the Nuffield Foundation, 28 Bedford Square, London WC1

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Seminar participants Barry Anderson National Association for Youth Justice Elaine Bailey SERCO Chris Ball Ministry of Justice Graham Beech Nacro Jon Collins The Police Foundation Lucy Dawes Youth Justice Board Michelle Dyson Ministry of Justice Kathy Evans Children England John Graham The Police Foundation Clare Hayes CLINKS Ross Hendry Office of the Children’s Commissioner for England Marcus Hook Catch22 Eddie Isles Swansea Youth Offending Service Dusty Kennedy Youth Justice Board (Wales) Judith Miller Rathbone Louise Morpeth The Social Research Unit, Dartington Tony Munton Matrix Evidence Rebecca Nadin Prison Reform Trust Sara Nathan (Chair) Independent Commission on Youth Crime Vicky O’Dea SERCO Jennifer Rubin RAND Europe Anthony Salz Chair, Independent Commission on Youth Crime Enver Solomon The Children’s Society Prof. David Smith London School of Economics David Utting Independent Commission on Youth Crime Sir David Varney Independent Commission on Youth Crime Michael Warren Home Office Andrew Webb Corporate Director, Services to People, Stockport

Council Observers Jesse Donaldson The Police Foundation Andrew Wright The Police Foundation

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Payment by results in tackling youth crime These notes are taken from a seminar hosted by the Independent Commission on Youth Crime and Antisocial Behaviour on 24th October 2011 at the Nuffield Foundation, 28 Bedford Square, London WC1 The seminar took place as a round-table discussion attended by 28 policy makers, youth justice practitioners, researchers, specialists from children’s organisations and think-tanks. Sara Nathan OBE, a broadcaster and a member of the Judicial Appointments Commission as well as the Independent Commission on Youth Crime, chaired the meeting. The seminar was held under Chatham House rules. The opening presentation by Dr Tony Munton, Director of Matrix Evidence, is summarised, but these are the only remarks that the report attributes to an individual. A background paper on Payment by results (PbR) that was circulated to all participants before the meeting can be found at the end of the report.

Presentation: Tony Munton An opportunity, not a threat • Payment by Results (PbR) should be viewed as an opportunity to promote

effective, evidence-based practice – not least in criminal justice where practitioners and researchers have already got to grips with key issues concerning evidence. Political support for PbR has led to a striking improvement in the level of interest in evidence among civil servants and other policy makers.

“There can be no suggestion that every aspect of PbR is going to be good, or that we are necessarily going to get it right first time. But we can gradually squeeze the benefits out of it.” • PbR isn’t new. The concept was applied by the US Government following

the Second World War to launch employment projects. It has been used in Australia in the employment sector, and by the Department for Work and Pensions in Britain. However, the Coalition government’s interest in PbR, alongside its ‘localist’ policies for devolving power and the severe restrictions placed on public spending, have given it new impetus.

An issue of information, not contracting • Service commissioners and providers typically ask how PbR contracts will

work with organisations as diverse as voluntary organisations and large

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private companies. But successful PbR is about overcoming information issues, not contracting problems.

• The contracting issues can be complex, but basing them on the right data is crucial as the first step because service commissioners need to know what they are paying for.

• The challenge is to develop more refined sources of evidence and find better ways of communicating them to the people who make decisions about public policy and service commissioning.

“The most interesting possibility is the potential for PbR to support and empower service providers to use the tools that researchers provide in order to improve what they do.” • We often do not know ‘what works’ in the public services being provided

for children, young people and families because there has been a limited tradition of research, evaluation and calculation of cost-effectiveness. For example, there are local authorities that cannot provide information on the unit costs of places in their children’s centres because they have never previously been asked to measure them.

• When the Audit Commission reported on the potential use of PbR in the NHS it came to the same conclusion: that its success depends on collecting good data.

Outcomes, inputs and outputs • To operate PbR service commissioners need good information about:

o How much is being spent on an initiative (resources) o The inputs being purchased (e.g. in drug and alcohol services, the

number of rehabilitation sessions being offered and the number of drug counsellors being employed.)

o The outputs being created in terms of service delivery. o The outcomes being achieved for service users as a consequence

of the various outputs.

• In the past, central and local government have tended to limit their analyses of the value, pricing and efficiency of services at the level of outputs. There is still some confusion about the difference between outputs and outcomes (‘results’) and how to measure them.

• It is important to understand the difference between the two, because both measurements are needed to assess the effectiveness of services.

• Once service commissioners have access to measures of effectiveness

they can start to monetise them and arrive at some useful assessment of value for money.

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• When measuring results, it is necessary to take account of the context in which they have occurred and the part played by external influences. For example, the effectiveness of a programme whose aim is to keep ex-offenders free of drugs could be seriously affected by changes in the availability of illegal drugs or policing initiatives that affected their street price.

Opportunities and limitations: • PbR will help providers to get to grips with the issue of impact. Is the

money they are spending really delivering what it is supposed to deliver?

“You need something like PbR to give things a bit of oomph; to get people to engage with the evidence.”

• The limitations include recognising that PbR is not a silver bullet.

Measuring results is not a simple matter of finding out ‘what works’. We need to know ‘what works for whom?’ and ‘what works under what kinds of conditions?’

Discussion points Evidence and effective practice • If PbR is to be introduced widely, it will require a reliable source of

information about effective programmes and practice. We need to understand what quality of evidence we want and to help commissioners and providers with measurement issues, because the landscape is complicated. Help in achieving good implementation of effective interventions is also critical.

• We are already in a strong position to disseminate knowledge about ‘what works’ and help practitioners to incorporate it properly in programmes that are widely applied. It is not clear that PbR is necessarily going to improve that.

• It is crucial to reach a decision about what constitutes acceptable evidence

and what the control or comparison group for acceptable results is going to be. PbR could serve to drive up the quality of evidence if that is accepted, but it is equally possible to see how it could be driven down if results are not rigorously assessed.

“How far should you prescribe what providers should do, and how far should you set them free to pursue whatever they think will work?”

• We need an honest assessment of what it takes to achieve better results.

We have some evidence about ways we can improve outcomes for people with complex needs, but the mechanism for improving outcomes is often

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about taking a child-centred approach and having confidence in the judgement of professionals.

• Government departments do not have a strong track record in commissioning evaluations and ensuring that the progress of new initiatives is monitored from the start.

• There are incentives for not going down the evidence route if it tells politicians what they don’t want to know, or if they think it conflicts with public opinion. For example, successive governments have allowed children and young people with learning disabilities and mental health difficulties to be placed in custody knowing perfectly well that it does not work.

“When I first became interested in this area, I held a rather naïve belief that when government was faced with evidence concerning things that work and the potential for savings then it would embrace the evidence and do what was necessary to meet its responsibilities to the public.”

• Evaluations using randomised controlled trials are few and far between in

social policy and the results can be inconclusive or fail to provide the kind of clear messages that policy makers are looking for.

• Knowledge concerning evidence-based programmes has been under-utilised in the public sector. Investors looking for a safe bet will normally want to put their money into evidence-based programmes, But it is important that PbR contracts include incentives and levers that will change behaviour and cultures.

“We have been trying to get the Incredible Years parenting programme, which is nicely evidenced, into children’s centres but the incentives aren’t there for staff to go out and find the children who are most suitable, especially those in the most vulnerable families. There is no reward for them for effective implementation of a programme capable of improving parent-child relationships and reducing the risk of conduct disorder.” • Difficulties taking well-evaluated pilot initiatives ‘to scale’ continue to create

barriers to the widespread application of effective practice. Existing knowledge about ‘what works’ only applies to some people in some circumstances, some of the time. We know there are ingredients that work on a small scale, but things can be very different on a large scale.

“Until we develop financial and delivery models that work to scale we are not going to make big inroads in reducing reoffending.” • The Government is endorsing payment by results, yet it is also abolishing

the Audit Commission whose work on the ‘three Es’ (economy, efficiency, and effectiveness) embodies the whole concept. It is doing this as part of a push to reduce bureaucracy, yet scaled-up use of PbR will – paradoxically – increase the bureaucracy needed to collect data and provide information

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on whether contracted results have been delivered and investors are entitled to their return.

“Beware of PbR designed by bright people, but implemented by even brighter people resulting in a law of unintended consequences.” • There are ways of achieving better results without going down the PbR

route. Outcome-based Accountability (OBA) methods are designed to bring communities together to focus on results and win shared agreement on what needs to be done to get there. The results are then be routinely monitored and made public.

• Another alternative to PbR is the Communities that Care model that promotes local ownership of preventive programmes but within the framework of guidance provided on the quality of the evidence and what counts as results.

Funding and risk • A danger with current rhetoric about getting ‘more for less’ through PbR is

that government uses it as an excuse for not making any necessary funding available at all.

“I suspect that the biggest political problem with PbR is that if you want people to accept something new, you have got to make it attractive. At the moment the discussion is about how we make contracting risk-free for the public sector – and that makes it potentially unattractive for service providers.” • We need to think more carefully about securing more imaginative funding

on the basis of outcomes. Hopes have been raised that it will be possible to mobilise large amounts of trust or private money through instruments like Social Impact Bonds to fund preventive PbR interventions and give them some impetus; but that is looking less straightforward than some people assume.

• The timescales for delivering results have led some voluntary

organisations to conclude they are too small to participate because they cannot responsibly share the risk of losing revenue over such a long period.

“The voluntary sector is under-capitalised for the task it is being asked to perform. Social Impact Bonds give them a little bit of air, but I’m not clear that organisations will be prepared to take the level of risk expected of them. I don’t see how trustees of charities can responsibly sign off on that level of risk.” • SERCO has around 10 per cent of its revenue for running HMP Doncaster

at risk under the PbR contract. The other 90 per cent covers the costs of keeping the prison open for business. A profitable private company can

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accommodate that level of risk within its own resources, but a voluntary sector organisation would have to turn elsewhere.

• As outcomes are increasingly ‘monetised’ under PbR there is a possibility that providers will want to safeguard their intellectual property rights and protect their product from competitors because of its commercial value. The consequence could be reduced transparency about the specific things they are doing to fulfil their contracts.

Commissioning and contracting • It must be better if we can move away from an emphasis on process in

service delivery to consider outcomes. PbR in some form can sharpen up delivery within government.

• Secure Training Centres (STCs) have voiced concerns about the detailed monitoring requirements in government contracts being all about inputs and outputs, with very little about outcomes for the children who, in any case, cease to be their responsibility once they leave custody.

“It is difficult for them to know whether the children in their care are better able to cope with the world once they have left.”

• One of the advantages of PbR as applied at Doncaster Prison (see

background note) has been the way that many detailed measures of output specified in the NOMS contract have been removed. The prison is working with offenders ‘through the gate’ and has more freedom to undertake whatever action is necessary to arrive at he agreed outcomes.

“With PbR the offenders remain your responsibility after they’ve gone out through the gate, which is good.” • There appear to be contracting issues relating to how far PbR can be

reconciled with a ‘light’ regulatory touch. Less intensive monitoring might make it harder to recognise unintended consequences before it is too late.

• A major challenge for providers working to PbR contracts will be to match

a need for consistency of service with low prices over a sustained period of time.

• Commissioning itself accounts for a significant proportion of overall costs,

raising a question mark over whether they can be reduced using PbR methods, or whether commissioning will become more complicated and expensive.

• Even when commissioners and providers are agreed on the use of

evidence-based interventions, there will be an issue about pricing. If those commissioning a resettlement programme for young offenders negotiate cut-price contracts because they cannot afford to pay for all the ingredients

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that can guarantee success, then programmes cannot be expected to achieve their objectives.

“If we are told we must ‘do more for less’ and programmes fail, we will next be told that PbR didn’t work. But it won’t have been the model that failed; it will be the fact that the contract only paid for three of the five things needed to get good results.” • When working with young offenders it is important to have a

commissioning framework that allows flexibility for the provider to tailor interventions to the needs of individuals. Some young people may need only one ingredient from a menu of approaches being provided; others will need all of them.

• Under Project Daedalus in London, the Heron Unit in HMP Feltham

houses 30 young men aged 15 to 18 supported by resettlement brokers who work with them ‘through the gate’. Funding by results is linked to whether they are placed and supported in employment, training or education for 26 weeks following their release (see background paper). Professional experience suggests that many of those young people need more support over a longer period that the PbR contract allows.

• The voluntary sector is generally keen to improve the evidence based for its services. One of the easiest ways to make that happen will be to include a requirement in contracts that they gather evidence of impact.

Measurement • The human tendency is to only measure the things that are easy to

measure. As Peter Drucker put it, ‘what gets measured gets managed’.

“We don’t want to go down the route of only evaluating the things we can measure easily. We shouldn’t stop trying to measure behaviour because it’s difficult.”

• Project Daedelus, (see background note) shows how difficult it can be to

know if you are comparing like with like when claiming ‘results’. Participants were, initially, selected because they appeared ready for rehabilitation, so their reconviction rates would not be strictly comparable with the 70% rate among all young people serving custodial sentences.

• At Doncaster, the PbR contract measures results on the basis of reconviction rates among all the short-term (adult) prisoners released, who will eventually be numbered ‘in their thousands’.

• A focus on reconviction data as a proxy for reoffending demonstrates the danger that PbR will have unintended consequences. It encourages service providers to get reconviction rates down, rather than attempt to

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grade behaviour and consider whether young people’s behaviour is better than before in any other respects.

“You can find yourself giving up on young people just because they have been reconvicted and missing an opportunity to invest in their futures –regardless of how minor the new offence may have been compared with their previous offending.” • In deciding what constitutes ‘results’ for young offenders it would be worth

looking at a wider range of outcomes than reconviction, including ‘proxy’ outcomes to assess the strength of family relationships, or the distances young people were travelling to hold down a job or training place.

• Proxy outcomes and predictors risk creating a new measurement problem. Outcomes should be long-term ‘whole life’ measurements and we shouldn’t spend too much time measuring whether we can influence what amounts to pretty normal, short-term behaviour.

• Outcomes are not always the most important measurement: if you have a well-tried and tested intervention, outputs and proper delivery become the important thing.

• We need a culture change in our approach to evaluation. ‘Doing’

evaluation ‘to’ people and then instructing them to change their practice is counter-productive. We should be getting them to monitor the impact of what they do for themselves.

“They need to be able to crank the handle for themselves and spit out the data.” Politics, administration and governance

• We are still at a piloting stage in terms of policy on PbR. There are

different things still in the pipeline and we should wait and see what emerges before reaching definitive conclusions.

• The pace of change in politics means that there is seldom enough space to develop pilot initiatives properly and evaluate them. There can also be problems with the number and complexity of pilots in any given locality and the potential for overlap.

• A problem with political timescales is illustrated by the Mayor of London’s premature announcement of promising early results on re-conviction from Project Daedalus. This led to adverse media coverage when the re-conviction rates subsequently increased. The public may have gained the impression that the project has failed, even if its final results are an improvement on typical reconviction rates.

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• It is difficult to get a coherent, unified approach to preventing youth crime and antisocial behaviour because of the overlap between departmental responsibilities in government and the number of different ‘pots’ of money. For example, the MoJ has responsibility for the youth justice system, but the latest initiative led by Louise Casey on ‘Troubled Families’ comes under Communities and Local Government, with support from Downing Street.

• The Munro Review of child protection services argued that too much

administrative emphasis on financial and management control comes at the expense of letting frontline practitioners use their professional discretion. Under PbR the need to attract finance from investors and remain accountable to them may conflict with a need in children’s services to be accountable to families.

• PbR raises important administrative and organisational issues for providers of youth justice and children’s services in the voluntary sector. If it is going to be an important part of the way that services are contracted in future, the impact could be huge on organisations and their partnership arrangements. Trustees will need to be given a clear assessment of the potential risks and returns.

“We need an honest debate about this and it seems to me that we really needed it yesterday.”

• Some voluntary and private sector organisations are used to working in

partnership and have done so for several years since the previous government began talking about creating a diverse market place for providers. They have found they share a similar outlook and respect for what each can contribute.

“PbR has given us an opportunity to innovate and collaborate in a way that we probably wouldn’t have come up with by ourselves.”

Location and ‘localism’ • There may be difficulties creating a level playing field for PbR between

different parts of the country. Providers who work with children and young people in social disadvantaged areas may find it much more difficult and resource-intensive to get ‘results’ than those serving more prosperous parts of the country. Contracts would need to take this into account, based on clear assessments of the conditions in different locations

“If you work in Liverpool, the conditions in which you are trying to get results may be much harder than if you work in Kent. So there is a danger the PbR provider in Liverpool will get penalised, while the provider in Kent, who is batting on an easy wicket, gets the most profit. There’s then a danger that the gap will widen even further once providers in less-challenging areas reinvest their earnings to improve services while those working in more difficult

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circumstances are obliged to make cuts in response to lower earnings or even financial penalties. If so, PbR could become a mechanism for diverting funds away from areas of greatest need.” • PbR is easiest to implement and monitor where the contracted services

work with offenders from the local population, rather than a wide geographical range. Most inmates in HMP Doncaster come from South Yorkshire and are released back into communities near the prison. By contrast, some YOIs may house young offenders from across England and Wales, making it far more complicated to organise and co-ordinate ‘through the gate’ re-settlement work.

“Our juvenile secure estate takes people from all over the place, and as the numbers in custody come down, young people will be spread even more thinly around the country.”

• The introduction of locally-elected Police and Crime Commissioners at

police force area-level from next year could lead to tensions between funding evidence-based interventions and more visible, ‘popular’ programmes (e.g. ‘boot camp’ or ‘scared straight’) that the evidence says don’t work.

• Parenting and other early intervention programmes ‘work’ and eventually

to make it less likely that young children who take part in them will offend. But their immediate focus is on things like improving parenting and parent-child relationships. Rather than make a long-term investment in e.g. Incredible Years, Police and Crime Commissioners might come under public pressure to focus on young people who are already offending.

• When people are asked about their local concerns with antisocial behaviour, the things that tend to come top of every list are ‘young people hanging around’, ‘dog mess’ and ‘litter’. Would-be Police and Crime Commissioners would need to decide whether to address those concerns directly, or look first at the evidence on longer-term solutions.

• Police and Crime Commissioners ought to have an interest in achieving good outcomes, and PbR will be a tool available to them, but the government’s emphasis on localism makes it unlikely there will be any central direction about whether they make use of it or not.

• Local providers should be encouraged to collect data to provide a

benchmarking system, allowing comparisons with other areas. This will require them to collect similar data. Arranging this should be a task for central government.

• An alternative model to PbR, based on the idea of localism, would be to

keep local choice about interventions, but do it within a framework or menu of programmes that have accumulated a weight of evidence behind them to show that they produce results. This would be better than setting

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providers free to do whatever they like to get results, including the use of programmes that are known not to work.

“It is hard to see why it would ever be acceptable to lead vulnerable young people to a service when you don’t know whether it will work and then – when it fails to deliver results – claim there is no problem simply because the taxpayer hasn’t had to pay for it.” PbR and the youth justice system • There are important questions about how far PbR can deliver what is

needed, given the complex delivery chains that characterise the youth justice system.

• The relatively small number of children and young people in youth custody might, in itself, make it harder to demonstrate statistically significant results in preventing reconviction and other outcomes.

“There’s a difference of scale in the youth justice system. It’s smaller, more local and has lots of different partners and lots of different outputs. It’s a different model to the adult system. Since that is the case, should we conclude there are limits and that – for example – using it to reduce the number of remands in custody is about as far as we should go with it?” • There are a limited number of service levers that can be pulled during the

relatively short time that most young offenders are in custody that can be expected to make a real impact on their lives.

“If young people are coming out of custody with nowhere to live they are scarcely going to want to get into the cognitive therapy stuff about recognising consequences and improving behaviour. You really do have to ask whether there are difficulties applying PbR in the youth justice world that outweigh the benefits.” • Fragmenting the youth justice system so PbR can be applied in areas, like

custody, where the conditions and circumstances seem right, could have perverse consequences: such as perpetuating the system of youth prisons.

• Use of PbR for offender rehabilitation programmes is relatively straightforward compared with any possible use in contracts for preventive services for children and young people. In the context of a children’s centre, there would be a need to decide what constitutes ‘results’ among a population of children and families who mostly display no obviously identifiable problems. But for a minority whose needs are complex it might be difficult to specify target outcomes that all the relevant agencies would accept as evidence of ‘success’.

• Only paying providers when they achieve results does not absolve the

state of its duties and responsibilities towards children. The arrangements

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for consigning risk to private and voluntary organisations must not allow those duties to be compromised.

• A positive, though unintended consequence of the Youth Justice

Reinvestment Pathfinders (see background paper) and the Government’s efforts to transfer remand budgets to local authorities has been the increased interest of local authority finance directors in Youth Offending Teams and the youth justice system.

• An unsuccessful bid by Greater Manchester authorities for the Youth

Justice Reinvestment Pathfinder money was based on a wide-ranging proposal to reform local youth justice services, including the use of restorative justice methods to reduce reconviction rates.

“The bid tried to put restorative justice at the heart of it because we knew that in the long-term that is where you can succeed. I would like to see us getting into that kind of arena rather than picking away at bits of the system.” • Restorative justice (RJ), while potentially effective, is about a very different

type of criminal justice system. Victim participation in the restorative process is an important ingredient in its effectiveness, but victims cannot be compelled to participate. As such, it does not lend itself readily to a PbR contract.

“Using PbR to fund something so completely different would be absolutely wrong.” • If a provider thought that RJ would help to deliver the contracted results,

there is no reason why it should not be part of an intervention package, “I don’t see why they shouldn’t go and do it. It can be one more tool in the box.” David Utting Secretary to the Independent Commission November 2011

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Payment by results in tackling youth crime

Background paper

“This year, we have been carefully but quite rapidly developing the concept of Payment by Results - A system which concentrates on only paying for what works.” Rt. Hon Kenneth Clarke MP, Justice Secretary at the 2011 Conservative conference.

In one sense, ‘payment by results’ (PBR) does what it says on the tin: encapsulating the idea that service providers should be rewarded according to the results they achieve, rather than for simply providing the service. It emerges from concerns that the delivery targets for public services, including those for children, young people and families, have too often been based on ‘process’ indicators (e.g. how many families were helped?) rather than outcomes (e.g. how much did children’s behaviour improve?). It is also associated with the debate about evidence-based practice, with a presumption that a payment system that rewards results will encourage the commissioning of services whose effectiveness has been convincingly established through evaluative research. Graham Allen review on early intervention In policy areas relating to youth crime and antisocial behaviour, some of the most enthusiastic advocacy for PBR has come from independent reports on early intervention by the Nottingham Labour MP, Graham Allen, who was asked to conduct a review of services and their funding by the coalition government. His first report (January 2011) made the case for investment in well-tested intervention programmes to give children social and emotional support, and to cost-effectively prevent problems in adolescence and adulthood, including low educational achievement, drink and drug misuse and criminal behaviour. The second report (July 2011) called for a halt to the “the budgetary and personnel juggernaut of late intervention” with an incremental rebalancing of budgets towards cheaper and more effective early intervention. As part of this process, the review endorsed the search for new ways to invest in early intervention and “create a market in early intervention and social investment products.” Time for a fresh start Interest in PBR has been explicitly linked in the Allen reports and elsewhere to constraints on public spending and a need to extract better value from remaining budgets while finding new sources of external funding for services. The Independent Commission’s report Time for a fresh start (July 2010) made a comparable point arguing that:

“…pressures on public spending make it imperative for the new Government to eliminate waste and invest in services that will represent value for money.”

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The Commission called for positive incentives for local authorities and agencies to invest in evidence-based preventive services “in the knowledge that they will save money further down the line.” Breaking the cycle The intention to embrace PBR in the criminal justice system was included in the coalition agreement and developed in the Ministry of Justice Green Paper Breaking the Cycle. The use of PBR methods to reduce reoffending and achieve other rehabilitation goals is described as “radical and decentralising.” This underlines the connection between PBR and the ‘localism’ strand of government policy whereby decisions over some services (and budgets) are being devolved from central to local government. The Green Paper added that the aim would be to invest public money in activities that prevent offending rather than dealing with its consequences:

“To do this we will give providers the freedom to innovate to deliver results paying them according to the outcomes that achieve and opening up the market to diverse new players.”

It added that the PBR approach would be developed and tested in the next two years, including six new PBR projects to reduce reoffending, with a view to applying the principles to all providers by 2015. Responding to consultation on the Green Paper (June 2011), the Government said:

“We will pioneer a world first – a system where we only pay for results, delivered by a diverse range of providers from all sectors. This principle will underpin all our work on reoffending”

Offender Services Competition Strategy The Competition Strategy for Offender Services (July 2011), which relates to adult rather than juvenile offenders, promises that competition will apply to all services not bound to the public sector by statute, and that competition will be used to focus more on outcomes. PBR contracting models “will drive innovation and ensure better value for money.” A comparable strategy for non-custodial services has been promised, and plans have already been outlined to use PBR for (adult) offenders on community sentences or released on licence. The CSOS notes the existence of statutory barriers that prevent the public sector from participating in delivering PBR pilots, making it likely they will have to work in partnership with the private and voluntary sectors.

PBR in practice Although the basic idea of PBR may be simple, its application is much less straightforward. The Government is involved in piloting models of varying degrees of complexity. Among those relating to criminal justice arena, only one – Youth Justice Reinvestment Pathfinders – is concerned with children

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and young people. The two other schemes, a payment by results pilot at Doncaster Prison and a pilot Social Impact Bond scheme at Peterborough Prison, are concerned with the rehabilitation of adult offenders. Youth Justice Reinvestment Pathfinders Four two-year pilots were launched In October 2011 in Birmingham, east London, west London and West Yorkshire, after a competitive bidding process led by the Youth Justice Board. In each area, the local authority, or a consortia of local authorities, was awarded a grant to commission alternatives to custody with the aim of reducing the use of youth custody in their area and achieving lower rates of reoffending. • The grant is based on the cost of community alternatives to custody, but

the pathfinder is allowed flexibility over how it is spent.

• If, after two years, the pathfinder falls short of the custody target agreed with the YJB/MoJ, it will be required to pay back a proportion of the grant (based on the average, weighted bed price of the above-target use of custody).

• Provided the pathfinder meets its target for reducing numbers in youth custody it can keep the grant funding, but there is no extra money available for exceeding the target.

Community interventions that those bidding for pathfinder grants were encouraged to consider were:

o Intensive, community-based provision o System improvements and system changes o Targeting particular cohorts of young people o Family-based provision o Young offender ‘academy’ type provision

The Commission is aware of one (unsuccessful) consortium bid, in addition, that included an investment in the use of restorative youth conferencing as part of its strategy. Doncaster Prison PBR pilot The PBR project run by Serco at Doncaster Prison in partnership with Catch22 and Turning Point was launched this month and is first of the six pilots to reduce reoffending promised by the MoJ (see above). The four-year programme provides rehabilitation services for offenders serving less than 12 months. It starts in the prison and continues during the three months following their release. Offenders are allocated to a dedicated case manager to support them during their time in prison and after their release. Advice is provided on employment, training, housing and benefits and offenders are being given access to a 24-hour helpline for support and guidance. There are also

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schemes in the prison that promote family links and a volunteer mentoring scheme for offenders who have been released. • The PBR element is achieved contractually through Serco agreeing that

ten per cent of its annual revenue for running the prison will depend on achieving a 5 per cent reduction in reconviction rates among prisoners discharged every year (calculated irrespective of whether the prisoners were engaged with the resettlement programme).

• If Serco fails to achieve its target, money will be paid back to the Government.

• If the target is exceeded, Serco will be paid more than the original contract price.

Social Impact Bonds: the ONE Service, Peterborough Prison Social Impact Bonds (SIBs) are results-based contracts for services that benefit individuals or communities and are designed to attract external investment in services. The public sector only pays for the initiative if it meets its objectives. But the final payment includes a return for investors – in principle funded by the money saved for taxpayers by achieving better outcomes. The risk of failure is removed from the public sector and shared by investors, not just the service providers. This makes the model potentially attractive to smaller delivery organisations that need working capital to bid for contracts, including those in the voluntary sector. However, SIBs are not like traditional ‘bonds’ because the investors place all, rather than some, of their capital at risk. Social Finance, the non-profit social investment consultancy that has developed the concept, describes SIBs as suitable for “socially-motivated’ investors. Most investors in the first, pilot SIB at Peterborough Prison are charitable trusts and foundations. Nevertheless, Social Finance envisages a market developing where individuals as well as a wide range of institutions will be able to invest. The pilot SIB in Peterborough Prison, known as the ONE Service started in 2010 and targets adult offenders sentenced to less than 12 months in custody. Over six years, it is intended to support 3,000 offenders (in three cohorts of 1,000 each) to reduce reconviction rates following release. The St Giles Trust, YMCA and Ormiston Children and Families Trust are among the external organisations providing intensive resettlement support for prisoners and their families before and after their release. The project has been co-commissioned by the MoJ and the Big Lottery Fund (BIG). BIG is contributing £6.25m towards £8m to cover development and running costs and provide up to £5m in outcome payments. Social Finance, as intermediary for the project, has raised £5m from 17 social investors. • The MoJ will pay a fixed unit outcome payment for every reconviction

avoided within a cohort, provided the overall reduction in reoffending is at

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least ten per cent. This would provide a 7.5 per cent annual return to investors over eight years

• The maximum return is capped at £3m above the original £5m investment. This would represent a 13 per cent annual return to investors.

• If the programme fails to deliver a reduction in reoffending of 10 per cent, but succeeds in reducing reconvictions by 7.5 per cent across all three cohorts, the MoJ will make a smaller payment.

• The results on which payment is based relate to all short-sentence prisoners released, irrespective of whether they engage with the One Service programme (which is not compulsory).

The Early Intervention Fund The proposal for an Early Intervention Fund has come from the Graham Allen Review (see above) and is described as “a broader product, like a social impact bond, that will invest in a wide range of early Intervention projects.” The Fund could be run by a social intermediary or bank. Local and central government would contract with an intermediary to deliver a pre-determined improvement in outcomes at an agreed price. The outcomes might include targets for school readiness, attainment or measures of social and emotional competence. The intermediary would hold a fund of money secured from external investors to pay service providers for their delivery costs and according to their performance. Provided the outcome improvements were achieved, the commissioning public sector body would pay investors an agreed return on their capital. The Graham Allen Review envisages links between an Early Intervention Fund, the Big Society Bank (whose role will be to fund intermediaries, not interventions) and a proposed Early Intervention Foundation to identify and develop the most promising approaches for improving children’s outcomes. It argues that some of the money raised from investors – and paid back by the public sector where contracts meet their objectives – should be used by the Early Intervention Foundation to develop promising programmes so they become suitable for investment (including evaluation and support in ‘scaling-up’). Other models • Under Project Daedelus, the Mayor of London’s programme for reducing

reoffending among young offenders leaving Feltham YOI’s Heron Wing, ‘resettlement brokers’ that work with young people before and after release receive payments that are linked to outcomes (including placements in education, training or work)

• The Private Equity Foundation (a registered charity) has been developing a Social Investment Fund for Disadvantaged Children that would channel investment into programmes capable of achieving ‘cashable’ savings. The initial plan is for a fund to increase numeracy levels in primary schools.

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This would be achieved by targeting the bottom 5 per cent of children in Year 2 with two interventions: Numbers Count and School Home Support.

• The Impetus Trust, a venture philanthropy capital organisation, is interested in funding suitable early intervention projects for investment, such as the well-evidenced Family Nurse Partnership intervention.

• The Graham Allen Review describes tax and other incentives that might be used to encourage ‘social’ investment. These include the possibility of extending tax-free ISAs (Independent Savings Accounts) to investments in “early intervention products”. It suggests that new Junior ISAs, enabling parents to invest tax-free on behalf of their children, could be put to the same use.

Issues Some criticisms and issues raised in relation to payment by results relate to their overall appropriateness and chances of success. Others are more specific to their use in youth justice and other preventive projects with children and young people. General concerns • Guardian columnist Polly Toynbee is among those who regard Social

Impact Bonds and other investment vehicles as unethical: “inviting the rich to make money out of the poor”.

• She has argued that whether they succeed or fail money will be made out of SIBs by intermediaries and others. She also suggests that if targets are missed on PBR contracts involving children, the state will pay out anyway:

“…the risk will not be transferred from taxpayer to investor, but the state is borrowing expensive money to pay back later come what may.”

“This is inordinately complex financial engineering to take public spending off current accounts – paying a higher future price.”

Contracting and evidence • Payment by results could improve public sector contracting by being less

prescriptive as a way of ensuring that service providers meet their obligations – and reducing the extent to which service commissioners need to monitor and ‘police’ their contracts.

• Payment by results depends on agreement about what will constitute a ‘result’. It also depends on whether, and how, it can be measured and what price can be placed on the improvement. Even with something as seemingly straightforward as reconviction rates after release from prison it is complicated (e.g. ‘re-conviction’ is not the same as ‘re-offending’, the likelihood of re-conviction will increase over time, reconviction for a trivial

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offence does not carry the same costs for the state as a further prison sentence etc.).

• Attributing results to a particular intervention is often difficult and requires sophisticated and expensive evaluation methods. Without evidence of causation, commissioners could find themselves paying contractors for a positive trend that has little to do with the actual intervention.

• Early intervention services are complex and may improve outcomes and save costs in a number of different domains over time. Programmes might produce relatively unsuccessful results in terms of their contract, but deliver other beneficial outcomes. Likewise, service commissioners in one service might object to meeting the costs of an intervention if many of the long-term benefits accrue to other departments.

• Graham Allen himself accepts that PBR is inappropriate where we do not know enough about current performance to be able to calculate a price for success, or where the outcomes needed are too complex or diverse.

• Some PBR models (e.g. that in Doncaster Prison) make it potentially problematic for smaller delivery organisations to compete against large providers that cannot afford to wait for payment.

• The pilot Social Impact Bond has been funded by trusts and foundations whose interest is in testing an innovative approach as well as obtaining a return on their investment. A question arises as to whether the concept would survive so readily under real world pressures where most investors would need to be convinced they stood a good chance of receiving a competitive market return. Contracting and outcome measurement difficulties could compound this problem.

Service delivery • PBR targets could create perverse incentives and encourage contractors

to ‘cherry pick’: concentrating initiatives on clients whose outcomes are easiest to improve, while ‘parking’ he most intractable cases with a minimum level of service.

• For similar reasons, PBR could led to conservatism in delivering services where it is known that acceptable results can be achieved, rather than innovative services that carry a risk of failure.

David Utting Secretary to the Independent Commission October 2011