Suppliers of probation services could be rewarded for poor performance under the government’s proposed payment-by-results (PBR) system, says a think tank report.

Analysis from the Social Market Foundation (SMF) says that the proposed mechanism puts private and third sector bodies at risk of losing funding if they try to reduce reoffending rates.

The current proposals will open up probation service contracts to providers outside of the state in 21 areas around the UK. Under the planned scheme, a chunk of the contract value will be paid on a PBR basis as a means of incentivising moves to cut reoffending.

But SMF says that using the Ministry of Justice’s (MoJ) own financial modelling, it has found that spending on schemes to reduce reoffending could mean some suppliers are worse off than if they had paid out nothing at all.

According to the research, the problem lies with a so-called “flat payment zone” which is designed to prevent MoJ having to pay out for changes which are little more than statistical flukes.

Service providers would have to cut reoffending rates by about four per cent to be fairly sure of making money, the think tank claims, since anything smaller is likely to lead to a loss. On the other hand, it would be more profitable to cut costs and let reoffending rise by three percentage points. In relatively small jurisdictions, the disparity could be even bigger.

“Payment-by-results in reoffending makes a lot of sense in principle and many elements of the government’s proposed scheme are good,” says Ian Mulheirn, director of SMF.

However, he adds that the introduction of a flat payment zone makes it “all but impossible for providers to achieve results good enough to get paid, without investors taking on impossibly high financial risks. The result will be that they simply won’t try”.

Reoffending rates do seem to have fallen in the pilot schemes being conducted in Peterborough and Doncaster, but at the moment SMF says that there is little to reassure potential service providers that they will reach the necessary standard to benefit from full payment.

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