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Along with localism, payment by results (PBR) is one of the Coalition's big ideas for public service reform. It is the main form of commissioning in employment services, and will become a very significant part of the way other services are procured and delivered including probation, prison rehabilitation and drug treatment and recovery. There has also been talk of using PBR to commission services for problem families, although Whitehall insiders admit the are hugely complex issues to address about measuring and attributing outcomes. 

On the surface PBR seems like a good thing. We would all prefer that the services providers who got the money we those which delivered the results. And ministers are adamant that providers which fail will have to accept the consequences; unlike the private finance initiatives, they say, risk will genuinely be transferred. Public service productivity has stalled or fallen in every rich country; perhaps PBR is the answer. 

It is also part of the austerity package and this is where some doubts start to set in. On all the contracts that have so far been tendered, to make decent  margins providers have had to assume they can achieve better outcomes than perviously recorded. In some areas as the contracts unfold the performance expectations are way beyond existing standards. This means that in complex areas of service, performance is going to have to be transformational on a big scale. And that would be unprecedented.

I wonder if anyone has shown ministers the compendious study of prison rehabilitation undertaken by Home Office civil servants a few years ago. It looked at schemes all across the world and came to one overriding conclusion: the more robust the evaluation the less evidence there was of unusually high performance.

If ministerial ambitions are not fulfilled, private sector providers will be tempted to play the system. 'Cream skimming' (the process by which providers find the easiest clients so they can achieve the best results) and 'parking' (whereby difficult clients are given the least attention possible) are endemic in PBR systems, especially if the payment system focusses on absolute outcomes rather than relative progress (sometimes referred to as 'direction of travel').

Charities (and the RSA itself is hoping to be part of a consortium to provide drug and alcohol services based on or whole person recovery method), will face the same temptations but they also different issues.

Charities have a mission of social good so if the work they undertake through PBR helps deliver their mission they may well feel the risks attached to PBR are worth taking. After all, the charity will hope to performs at or near to the contact performance expectations and it is only risking the element of the contract payment funded through PBR. 

Whilst the idea of charities using their general funds to subsidise the shouldering of risk to deliver Government objective might sound perverse, it need not be as long as the charity believes it's work is effective and valuable. But what about the independence and diversity of charitable activities? If the sector uses its funds to subsidise Government policy objectives hasn't it effectively become an arm of the state and thereby negated the very characteristics of responsiveness and experimentation which are supposed to be its strengths?

The ministerial response to this objection is to argue that as long as the outcomes are met it is up to the charities to decide how to delver them. Iain Duncan Smith has said that he views the activities of Work Programme providers as a 'black box'; he doesn't care what happens inside it only what outcomes emerge. 

Well, up to a point. The fact is that the independence of charities lies not only in their methods but also the outcomes they pursue. In dealing with vulnerable people, they might, for example, have a more holistic interest in a person's dignity and well-being, going beyond the particular outcome targeted by Government. With major cuts to grants to third sector organisations many charities will face a simple choice; either cut back their services or accept that they have to put their energies into delivering Government targets even if they believe these targets are misjudged or too narrow.

It is still early days for payment by results and it may end up not as widely applicable to services as ministers seem to think. For example, few policy analysts I know think the social impact bond model has wide application. For the sake of service users and taxpayers we should all want  PBR to succeed. In some cases it's funding mechanisms will encourage experimentation and innovation (that's the RSA's hope in exploring our own bid), but there are pretty certain to be downsides as well. Let's hope the Government's commitment to transparency will be maintained even if some of the consequences of PBR prove problematic. 

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