Rory Stewart's plan for re-introducing competition for running prisons, announced in November, is the most ambitious and is some respects, most sophisticated ever attempted. But can it work?
For the private sector, there are three main deterrents to entering this market. First is the stop-start, hand-to-mouth nature of such competition, with no assurance of any long-term prospects – indeed, many competitions have been aborted or petered out half way through. Second is suspicion that, when the public sector is allowed to compete, there will be some sort of bias in its favour. Third, no company wants to win contracts at such unfeasibly low prices that failure is all but inevitable.
Stewart's plan addresses the first point with a 10-year programme, comprised 10,000 places in new prisons to replace ageing, cramped prisons with poor facilities, together with the re-competition of existing private prison contracts when they end (the first of the 25-year PFI contracts will end in 2022) – so, not far short of 20,000 places in total. It dwarfs anything that came before.
The 10-year planning horizon is unprecedented in this sector, and highly unusual in any area of public policy. It offers a long term 'pipeline' of commercial opportunities which is exactly what the private sector, particularly aspiring new entrants, need. This is not appreciated by those with no understanding of how the private sector works, which sadly includes many ministers as well as civil servants, who tend to regard the private sector as a tool for Government to switch on or off as convenient.
The need for a pipeline isn't greed: it's a commercial necessity. Bidding is costly: it requires the bidder to assemble a team, which must include a credible Governor or two who, if you are a new entrant, generally has to be poached from the public sector: and good governors will be hard to attract, especially if this is a first ever bid, since if unsuccessful, there may never be a prison to govern. A good bid team, plus lawyers etc, costs around £500k minimum, much more for PFI; moreover, these are people who could be bidding for prisons in other countries, or for other opportunities in the UK, so there are big opportunity costs also. There are huge diseconomies in operating one prison only. Prisons are a highly specialised market, so the company's board will need persuading that there are long-term opportunities. Government's habit of announcing competitions as one-off, abandoning many of them part way through (an astonishing 11 out of 14 market tests since 1992 have been aborted), and invariably awarding contracts to the existing big three operators, is massively discouraging to companies contemplating entry to the market, as I well know, having worked for two.
So, Stewart's 10-year programme is welcome indeed. Trouble is, the UK system of government makes such long-term strategies entirely undeliverable, especially where there is no bi-partisan agreement. By 2028, there will have been at least two General Elections, but probably several more – there is every likelihood of one being called in the next month! Labour strenuously oppose competition and are committed to re-introducing monopoly provision. Even within a single Parliament, Government spending planning has a maximum horizon of 3 years, so there is no guarantee of funding beyond that – especially as we approach the uncharted seas of Brexit, with likely further deep cuts in Government spending as the economy tanks. On top of that, there is the rapid turnover of ministers, and the strange convention nowadays, that continuity of policy within an Administration means nothing, rather we have a succession of distinct policies by different Tory minsters. And Stewart himself has pledged to go if he can't reduce violence in prisons by August 2019 (but expect some re-engineering of that promise: 'reduce' meaning 'stop rising further', 'prisons' meaning 'some prisons' etc).
So, the chances of his strategy lasting 10 years are vanishingly small. Proof of that is what has happened to previous strategies: the 5 year programme to compete a quarter of prison and probation spending launched in 2006 (1), or the grand plan in 2009 to increase capacity to 96,000 places and replace ageing city centre prisons with new ones, but with competition to run new prisons limited to the private sector (sound familiar?) (2) or Ken Clarke's competition for 9 prisons launched in 2011 (3). None of these lasted more than a year or two, or came anywhere near the volumes promised, for all sorts of reasons: lack of persistence and nerve by Government, change of minister or Government, the Crash, disgrace of bidders.
On the second issue, the public sector is apparently to be excluded - it isn't totally clear that Stewart means they will never be allowed to bid in any of these competitions, but that is seemingly what he says. This too will greatly encourage bidders. But is it in the public interest? If the private sector gain 7 or 8 new super jails, replacing perhaps 12 or 15, old public sector prisons, then the private sector share of the prison 'market' would rise from about 18% at present to around 30%. Why exactly is that desirable, given that as Stewart rightly says, there is no consistent difference in performance between the two sectors? Stewart does not say. Of course, the answer he should make, is to increase competitive pressure on the public sector. But if all the competitions for the next 10 years exclude the public sector, and if the growth in the private sector is entirely through new builds and new-for-old, and not through market testing of existing prisons, then where is the competitive pressure on the public sector? Successive heads of the Prison Service have said that an important driver of improvement in the public sector was knowing that if you persistently failed, another operator be brought in to take over your prison. On Stewart’s strategy, the public sector face steady erosion of their market share - but are never challenged to show how they could improve performance. 'Competition', yes - but never between sectors. Missing the point, surely.
This brings us to the question of the purpose of this strategy. Here Stewart is less than clear, and seems content with the usual platitudes that have been offered in every competition for a quarter of a century now. He says it 'is not about the difference between the public and private sector'. Rightly, because on quality, there isn't, and never has been, a clear consistent lead of one against the other; on price, there probably still is a significant private sector advantage but we don't know how much, and the main cost difference, pensions, is unknown, indeed unknowable.
So, what is Stewart trying to achieve? ' Driving quality and innovation'. But he has admitted that there isn't a difference on quality. As for innovation, the evidence is that innovation by the private sector, though useful, has been of marginal importance and certainly not a game changer, and not just in this country. (In my book, I make the argument that prisons are simply not a particularly suitable sector for innovation, for various reasons.) And there is nothing inherently good about innovation, it isn’t some sort of magic powder you sprinkle over everything – it can be harmful, as we have seen in probation.). The private sector did innovate in prisons, two decades ago, by cutting building times and costs in half and reducing operating costs by around 30%. But they no longer have quite the same edge now. And that was about cost, not what they achieved with prisoners.
Stewart also wants competition to reduce re-offending. On this, there is no evidence that private prison operators do so better than the public sector, here or in any other country. Nor privatised probation. I believe that looking to 'innovation' to reduce reoffending is a mistake, resting on an uncritical belief that innovation is invariably the route to improvement (it wasn’t in the 2000s: we just started managing. Though for Government, OK, that was an innovation.) We know very well what sort of things reduce risk of reoffending: we just don't do them very well, because they cost money. Indeed, as I have argued elsewhere, it is my growing conviction that for various reasons, no correctional service can reduce reoffending by more than a few percentage points, and any such success is likely to be drowned out by fluctuations in the reoffending rate due to societal and other changes which we do not control and do not understand. To be sure, to help the offender in front of you lead a more law-abiding, satisfying and self-reliant abiding life is always a moral imperative: but the correctional services are not a machine for changing society.
So, I am not much impressed by the supposed aims of this strategy. Yet surely, it isn’t too hard to describe what we really want. Not shiny gizmos or clever new panaceas. We want prisons that aren't desperately overcrowded or full of drugs, prisons that are safe, decent, and provide the regimes and activities which, we already know very well, help prisoners stay out of crime on release. Prisons we needn’t be ashamed of and which, if they don’t do much good, at least don’t do much harm. But all that costs money.
Which brings us to the third concern – the risk of the race to the bottom. Stewart says he wants 'value for money' but what does that even mean nowadays, when the entire system is in a bad way? Grayling cut public sector staff/prisoner ratios, and staff starting pay, to something much closer to private sector levels; staff ratios were cut in some private prisons too. Meanwhile there has been no relief from high overcrowding. Add to that the new drugs, and the result has been catastrophic: a prison system which in 2010 was in as good a state as it had been in living memory, has become, in local prisons particularly, a violent, drug-fuelled chaos that shames this country and, of such a thing were possible, this Government. (In 2011-11, not one prison received the lowest performance rating, giving 'serious concern'; last year, 15 prisons were so rated, with no great difference between public and private sectors).
So, the question is, can extending the private sector be helpful, in a system so damaged by austerity? I can see how it just might. Bigger, newer jails will mean significantly lower operating costs; and in addition, it looks to me that the private sector is still significantly more efficient than the public sector, not necessarily because the staff: prisoner ratio is lower, but because they get more work time out of staff, pay lower pensions, can be more sensitive to local labour markets, and so on. Put those things together and the operating cost of a new big private v old smaller public prison might be 25 or 30% lower per place. If those savings are reinvested in staffing levels and decent regimes, it might be that the private sector will have a better shot at running decent, safe jails, which moreover will have sufficient, modern regime facilities.
But will those savings be re-invested in the new prisons? I can’t see that happening. MoJ is currently running a structural deficit of £1bn a year, almost as big as MoD's. That is to say, current operations are under-funded by £1bn, which is being covered in various hand-to-mouth ways. If MoJ were a business, it would be required to file for bankruptcy. Brexit will for some years drive down GDP and hence spending, while driving up spend on benefits and support for what was previously EU funded. The court reform programme, which promised savings, is already in deep trouble and looks set to be next MoJ failure.
And there’s another obstacle, of Stewart’s own making, to retaining and reinvesting savings: rising numbers. Gauke and Stewart have talked a good talk about cutting short sentences, but done nothing. If the number of sentences under 6 months were halved, that would cut numbers by only a couple of thousand. On current projections, we need more capacity by the early 2020s. That suggests that 'new for old' will be impossible – we will need to keep some of the old prisons going to meet demand. But if the old prisons in reality cannot be closed, then where are the operating costs for new prisons to be found from? So, my guess is the Treasury will want its pound of flesh and any savings from ‘new for old’ will go to offset the MoJ's frighteningly huge operating deficit and to keep existing prisons going. Making the race to the bottom the only game in town.
A further question, that I’ve raised before, is who will bid. SERCO and G4S are still (after 5 years!) under investigation by the SFO, leaving only one operator, Sodexo, as an acceptable bidder. The obvious source of new bidders is the privatised probation service, in particular MTC, who operate prisons in the United States, and Interserve, who build and service prisons here. Both companies have been marched up and down this hill previously, but may reckon that their CRC experience, which means they are used to dealing with offenders in the UK, justifies the triumph of hope over experience, especially with £5bn or so of contracts potentially on offer. What is their track record? Privatised probation has been a failure: its contract has been terminated early, its performance has been much poorer than the public sector, innovation has, says the chief inspector, been marginal and some of it downright harmful. MTCs record in America is not terribly attractive; private prisons generally in the US have not been as much a success as here, and there is the nagging worry that American methods of running prisons are nothing like ours (The Shawshank Redemption v Porridge, if you will). And Interserve have been teetering for some months on the verge of becoming the next Carillion – and a hefty Brexit-driven recession could well tip them over. So, it’s not clear where Stewart’s transformative effect will come from.
Prison operators, existing and new, are therefore being offered the prospect of running huge new jails, that will be perpetually overcrowded and near the limits of control and decency, with the sort of blowback on reputation that G4S has suffered, and on tighter than ever margins. Some offer! Still, a pipeline with a value of maybe £5bn will get very serious attention. And companies looking for public service outsourcing contracts can’t pick and choose – they are stuck with government, as customer, for better or worse. So bidders will come forward, smelling the big money in an increasingly bleak world.
I am just not sure that it’ll do much good – I mean, deliver any real public benefit, which is the only justification for outsourcing. When most prisons were doing OK, the threat of competition helped keep them that way. But when both sectors struggle, in a system so badly damaged by deep cuts in funding, but none in prisoner numbers, and in much worse shape now than for the past several decades, does competition promise any more than a choice of operators who can barely cope?
(1) “Improving prison and probation: public value partnerships” Home Office 2006
(2) “Capacity and competition policy for prisons and probation” MoJ 2009
I was formerly Finance Director of the Prison Service and then Director of the National Offender Management Service responsible for competition. I also worked in the NHS and an IT company. I later worked for two outsourcing companies.
Click below to receive regular updates