‘PbR Could See Charities Lose Money,’ Says New Report

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A report produced by the Social Market Foundation (SMF) has warned that plans by the Government to introduce payment-by-results (PbR) risk putting third sector (and private) organisations into a position where they are in danger of losing money if they try to cut re-offending.

Plans are in place to open up probation services to non-state providers, and it is hoped that charities and voluntary sector organisations will be able to put their expertise in working with offenders into practice and work towards reducing offending, by competing with private companies for contracts on a level playing field.

Unfortunately, the report by the SMF warns that the proposed payment mechanism may put charity finances at risk.

The logic behind PbR is that a proportion of a contract is paid to providers based upon a series of targets, and with rewards relating to reductions in reoffending – providers will be paid depending on the results that they produce.

However the SMF’s research found that in order to be sure of making any money at all, organisations winning contracts under PbR must achieve a reduction in reoffending of at least four percentage points – targeting smaller reductions would result in a financial loss.

By contrast, the report argues that if providers focused on cutting costs and allowed reoffending to rise by three percentage points it would actually prove to be more profitable for the provider. These negative performance incentives seem to go against the premise of PbR, and the SMF warns that these counterintuitive outcomes could be magnified in small contract areas.

SMF Director Ian Mulheirn warns that “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.

“Payment-by-results in reoffending makes a lot of sense in principle and many elements of the Government’s proposed scheme are good. But their payment proposals look set to wreck the financial incentives that providers and investors need to make this scheme work.”

Accessibility for charities

At CAF (Charities Aid Foundation), we’ve made it clear that we believe the Government’s plans to introduce PbR for probation services have the potential to be incredibly beneficial for charity and voluntary groups, but only if they are introduced in a way that makes the system accessible for charities.

Our Funding Good Outcomes’paper sets out issues that we believe the Government needs to address in order to allow charities to compete for contracts on a level playing field, and we urge them to take a renewed look at the funding formulas to ensure that charities can compete to provide PbR services without putting their financial stability at risk.

We’ve been delighted to see a number of MPs have been pressing the Government to make sure that PbR works for charities. We know that so many charities have expertise in reducing offending, and are eager to use their experience to make sure that offenders are rehabilitated into society. We’re determined that PbR is introduced in a way that gives charities a chance to turn people’s lives around, and when Parliament returns in a few weeks we’ll continuing raising awareness of our concerns to make sure that PbR works for charities.

Steve Clapperton

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