The Ministry of Justice has been criticised for “massively underestimating” the costs incurred by the new providers of probation services for low- to medium-risk offenders at the time it tendered contracts in 2014.
The department revised its contracts with Community Rehabilitation Companies in August this year after the providers projected losses of £443m between 2016 and 2022 due to higher-than-expected costs and a reduction in the number of offenders being referred to them.
In a report published today, the National Audit Office said projected maximum fees by the ministry to CRCs had now increased by £342m over the life of the contracts. This includes payments of £42m in 2016-17 and £22m in 2017-18 that were made in excess of the fees paid under the terms of the original contracts.
MPs on the Commons’ Public Accounts Committee said the government had “set these services up to fail” and that hundreds of millions of pounds were now being directed at CRCs without evidence that they will succeed in reducing reoffending.
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In 2014, the MoJ introduced reforms to dissolve 35 self-governing probation trusts into a public sector National Probation Service – to manage high-risk offenders – and the 21 CRCs.
Contracts with CRCs were let from 2015, but both the ministry and the providers themselves underestimated the costs of providing services, the NAO found. The contracts assumed that fixed costs would be 20% of total costs, but CRCs reported fixed costs of 77% on average.
The NAO also said that the volume of activity CRCs were paid to do in the first quarter of 2017-18 was between 16% and 48% less than originally anticipated, so they received less money for their services from the MoJ.
Critics of the new system have said these threats to financial stability have led to poor CRC performance. The auditors found that the MoJ had expected CRCs to be meeting 24 performance targets from the end of February 2017, but by the end of June 2017 they had met just eight.
Commenting on the NAO report, PAC chair Meg Hillier pointed out that the committee had raised concerns in 2016 about the failures of services to help offenders find employment and accommodation on release.
“What today’s report from the NAO shows is that the government set these services up to fail when it massively underestimated how much it would cost to deliver them,” she added.
“Hundreds of millions of pounds of additional taxpayers’ money is now being directed at CRCs, but it remains to be seen if the changes are enough to fix the government’s broken system, and help reduce reoffending.”
Contracts with CRCs include payment-by-results arrangements, so in future the level of income CRCs receive will increasingly depend on their success at reducing reoffending. The NAO said that while initial reoffending data for England and Wales shows a small reduction in the rate since reforms were introduced, the frequency of reoffences per offender appears to be increasing.
The first performance payments to CRCs informed by reoffending data are due in January 2018.
A Ministry of Justice spokesperson said: “As we said in July, probation services are falling short of our vision for a high-quality system that reforms offenders and commands the confidence of courts.
“That is why we have changed CRC contracts to address the challenges CRCs are facing as a result of their financial situation, due to the reduction in the volumes of offenders referred to them.
“We are clear that CRCs must deliver a higher standard of probation services, which strictly enforces sentences, reduces reoffending and protects the public."