Evidence submitted to Justice Committee inquiry into prison reform

JUSTICE COMMITTEE INQUIRY INTO PRISON REFORM, SESSION 2016-17
 
EVIDENCE SUBMITTED BY JULIAN LE VAY
 
Introduction
 
I was Finance Director of the Prison Service between 1997 and 2001, responsible for contracts with the private sector.  I was then briefly Director of Competition and Commissioning for the National Offender Management Services (NOMS). I later worked with two outsourcing companies on bids for (amongst other things) prisons, one in competition against the public sector, the other in collaboration with the public sector. I am now fully retired. My book, 'Competition for prisons: public or private?', was published by The Policy Press last year.
 
This submission focuses on two issues: competition for prisons (and services within prisons); and the 'reform prison' concept.
 
Mr Gove's statements on reform prisons made almost no reference to privately run prisons.  This is surprising, on two grounds. First, when the Conservative Government introduced privately run prisons in the early '90s, the benefits claimed were precisely those now claimed for reform prisons:  freedom from detailed central control, innovative practice, better value for money, better performance. It is surely relevant whether privately run prisons, which have now existed for a quarter of a century, have in fact achieved those benefits: and if they have not, why should reform prisons be expected to?
 
Second, it is unclear what the relationship is meant to be between privately run prisons, and reform prisons. Would they run in parallel? Would one replace the other? The issue is especially pressing, because Mr Grayling as Justice Secretary suspended all competition for running prisons, and since then it has been unclear whether Government wishes end competition or not. Decisions need to be taken soon, in relation not only to the 9 new prisons announced last year, but also the ending of the PFI contracts, beginning early next decade.
 
In this paper, I summarise what competition has and has not achieved, and argue the case for resuming competition, but better managed than in the past; and I make the case for a more pragmatic, evolutionary approach to devolution of powers to Governors than the 'radical autonomy' model proposed by Mr Gove.
 
THE LESSONS OF COMPETITION TO DATE
 
25 years of competition
 
The 14 existing privately run prisons have been procured in 3 ways:

1. 10 prisons were financed, built and run by the private sector under PFI on 25 year contracts. 
   
2. 2 prisons were built by the public sector and then the operation contracted out, initially on 5 year contracts, now extending to 15 (3 other prisons were originally operated under contract in this way, but when subsequently re-competed, were eventually returned to public sector operation).
   
3. 2 publicly run prisons already in operation were 'market tested' and the contract awarded to a private operator.

 
Privately run prisons hold around 18% of the prison population in England and Wales.  
 
In parallel, specialised services within prisons have progressively been contracted out. Budgets and contracts for education and health moved to the Department for Education and Skills and Department of Health respectively in the early 2000s, and contracts were then awarded to specialist providers for each prison, or groups of prisons. Mr Grayling introduced centrally negotiated contracts for FM and resettlement services in all prisons, including (it appears) some or all of the privately run ones.  This means Governors (and private sector Directors) do not control important parts of their prisons' operation, or even manage the contracts for them.
 
The impact of competition
 
Remarkably, Government has carried out no comparison of the cost and performance of public and private sector prisons since 2000 (and then only for the minority of 'non-PFI' prisons).  And there has never been any full review of the working of competition and its overall impact. Research by the Institute of Criminology at Cambridge earlier in this decade produced important new insights about differences between sectors (and also within the private sector), but was limited to a few prisons and has been overtaken by changes, particularly   steep cuts in staffing in both sectors, which have changed the picture radically (1).
 
In my book, I look at all available evidence and conclude:

1. On quality of service, neither sector has consistently outperformed the other. In fact, they both followed the same trend: severe operational problems at some prisons around 2000 (albeit for different reasons), then steady improvement to 2010, and deterioration since then: figure 1 shows this, using NOMS' own prison performance ratings.
2. Construction: under PFI, the private sector built prisons twice as fast at half the cost, but the public sector has since greatly improved on both time and cost. Comparison of operating cost is extremely difficult because of the intricacies of PFI, the unfunded nature of public sector pensions, complex adjustments required to compare like with like, and commercial confidentiality. My estimate is that the operation of private sector prisons has been in the region of 15-30% cheaper than public prisons of the same type, but perhaps 40% cheaper, if realistic estimate is made of the true costs of unfunded public sector pensions. I consider below how far that gap can have been closed.
3. Innovation by the private sector has been significant on staffing levels, using staff flexibly, pay and terms and conditions, construction time and cost and in some respects, more respectful treatment of prisoners. To some extent, the public sector has since adopted those advantages. The private sector has usefully made more innovative use of ITC: but it is not a game changer.  Limitations on innovation include the nature of prison routines, limits to substituting ITC for staff, the customer's conservatism and risk management.
4. The main benefit of competition has been to drive improvement in the public sector, in particular to overcome resistance from the POA, which had historically dominated and often paralysed management, nationally and locally. There are specific examples of how threat of competition was used in this way. But there were other factors that weakened the POA, including the banning of strikes.
5. On the risk of a race to the bottom, competition did help contribute to problems in some privately run prisons around 2000, with too few staff and too high turnover, but these were not the only causes of their problems then (and some public sector prisons were then performing just as badly, but with much higher costs and staffing).  To an extent, the lessons were learned in later competitions. Now, both sectors are in difficulty with low staffing, but driven not by competition, but by spending cuts.

 
Figure 1 NOMS performance ratings of all prisons, by year
Reproduced from my book, ‘Competition for prisons: public or private’ (2015)

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Notes:
1 Prisons are rated annually: 4: exceptional performance 3: meeting majority of targets 2: overall performance of concern or 1: overall performance of serious concern.
2 Table excludes types of prison not operated by private sector (open, high security).
3 Table excludes contracted prisons which were in comparator groups which did not include any public sector prisons.
 
Management of competition
 
On the plus side:

1. A competitive market was successfully developed and sustained for a quarter of a century, in what has probably been the most controversial, complex and high risk example of contracting out public services.
2. Competition achieved substantial benefits, described above, though less than what advocates promised.
3. The fact that Government was a single customer helped even the balance against large global companies, and develop and sustain expertise (which was not the case with PFI deals in the health and education sectors).
4. The regulatory framework was reasonably effective, particularly the existence of a strong, independent Inspectorate, that inspects both sectors in the same way.

 
But there are ways in which competition has not been well managed:

1. Government has often been unclear about what it hoped to achieve, such as to how to balance cost and quality, and how far it really wanted 'innovation' and if so, for what purpose.
2. As noted, there has been almost no evaluation, and a lack of transparency on costs and staffing.  Most prisons are PFI contracts, where costs cannot be compared directly with public sector prisons. PFI deals did have a hypothetical Public Sector Comparator: but both this and the PFI contract price depended on so many assumption over the 25 year term that some years into the contract, as contracts and prices underwent successive changes, such comparisons became meaningless.  Thus, it is impossible to say much with confidence about comparative costs of PFI and public sector prisons.  Indeed, PFI generally now seems somewhat discredited, though it achieved real benefits in this sector in construction time and cost. Even for 'non PFI' prisons, the adjustments needed for fair comparison are lacking from published data. Commercial confidentiality means key data is withheld from public scrutiny, often on inconsistent grounds.
3. Management of competition has been a chaotic, stop-start affair. Fine sounding competition strategies   have been abandoned after a year or two e.g. the 5 year strategy published in 2006, or that published in 2011.  Competitions once started are frequently abandoned: of 14 prisons market tested, no fewer than 11 were abandoned mid-competition. The mix between the 3 procurement routes set out above has developed haphazardly, with some unforeseen effects. Most private prisons came into being through PFI, that is, competition only within the private sector: direct competition between public and private sectors has in fact been rare.  The proportion of prisoners held in privately run prisons is today higher than ever: but that is merely a side-effect of the fact that during estate rationalisation, it cost too much to terminate PFI contracts early. Part of the reason for lack of sustained strategy is ministerial churn; and sometimes events supervened (e.g. the scandal of the SERCO and G4S tagging contracts). But more fundamental has been the tendency of government to view competition simply as a way of bringing pressure to bear on public sector unions and management, with the private sector seen as a device to switch on and off as needed. There has been a startling lack of long term commitment to sustaining a viable and thriving private sector, which of course is needed for effective competition.
4. Allowing the private sector to reduce from 4 to 3 companies in 2008 was a big mistake: thus when SERCO and G4S were both disgraced in 2013, there was only one company left standing. This could well prove fatal to competition, should SERCO and G4S now face criminal charges.
5. Too often, other policies have been introduced which inadvertently undermined effective competition. Examples are: the high degree of process specification developed in the late '90s to deal with chronic public sector failure,  was then  imported inappropriately into private sector contracts;  failure to link contracts for prisons and post-release resettlement services (NOMS in fact, far from uniting prisons and probation,  initially cemented each into their silos); the movement of education and health contracts to other government departments in the 2000's; and NOMS' recent imposition of nationally let contracts for support services in all prisons, leaving Governors and Directors without levers to control vital services within their prisons.
6. NOMS both runs competitions, yet is also the dominant competitor in those competitions This is obviously anomalous, puts the Chief Executive in an impossible position, and undermines the credibility of competition.

 
The end of competition?
 
Mr Grayling abandoned competition, aborting the market testing then underway.  He did a deal with the public sector: they drove down costs across the whole system through direct management at a faster pace than (though not as far as) was possible through competitions for each individual prison, by reducing staffing in public sector prisons, and contracting out support services in all prisons. (Thus, competition would have delivered bigger savings, but much more slowly, and time was of the essence to meet budget cuts.)  In return, he suspended all forms of competition indefinitely. At the time of writing, there is no policy on competition and no decision on whether the new prisons announced last year will be competed at all, and if so, how.
 
In my book, I consider the proposition that, following staffing reductions in the public sector, revised pay structures and pension arrangements, and estate rationalisation, there is now no significant cost difference between public and private sectors.  Absence of published data on a comparable basis makes this is very problematic. For example, historically, costs of publicly run prisons have excluded costs of health and education contracts, which have sometimes been included in private sector prison costs, likewise differences in costs of insurance and risk transfer are not factored into published data. I concluded the private sector is still substantially cheaper:

1. Where prisons have transferred from public to private sector, operating costs reduced by around 25%, or more like 35% on realistic assumptions about costs of unfunded public sector pensions.
2. For existing public prisons, we know that staff are transferring to the new pay structure very slowly and that some staff will stay on the old pay scale - and also the old pension scheme - for decades to come.
3. For both new and existing publicly operated prisons, we know that the new national pay structure is not much responsive to local labour markets, and that terms and conditions, such as sickness benefits (which we know from research affect time worked and therefore, the staffing levels needed) have not changed.

 
Recommendations
 
Competition is clearly in the public interest, and should be sustained. But it needs to be understood that competition is dynamic:  it is not simply a question of whether one sector being better or cheaper than the other at a moment in time. Rather, monopoly power inherently tends to complacency, inefficiency and poor service - and the Prison Service’s record when last a monopoly shows this in spades.  So it is desirable that providers should be aware that they can lose business -  and that Government should be able to change providers.  We should be clear what it can and cannot achieve. Competition, from where we are now, will not be transformative: its major impact has been realised already. But it will exert continuing pressure against rising costs and slipping performance, and inhibit a slide back into monopolistic behaviour.
 
For competition to work well, and in the public interest, changes are needed in the way it is managed:

1. We must do better than the historic chaotic, stop-start approach. There should be a long term programme of competition, with political commitment based on understanding of what competition achieves long term, rather than on marginal advantages of this sector or the other at a moment in time. Government should commit to creating an environment for a thriving private sector, along with a thriving public sector, rather than switching competition on and off to discipline the public sector. 
2. The 9 'new for old' prisons already announced, together with the successive termination of the PFI contracts during the next decade, provide an ideal opportunity for such a long term programme. The 'new for old' prisons, because they involve maximising value of land disposal and housing and commercial development to generate capital for new prison construction, would be better handled by the private sector. As PFI contracts end, on-going operation could be competed between sectors.
3. Competition should be more open to (cautious and useful) innovation.   Ways of linking prison contracts and post-release services should be developed -  such as half-way houses for prisoners nearing release, still in custody, but working in the community (this would ease population pressures within prisons). The recently let probation contracts may be a barrier to this, but the 9 new build prisons need not be handicapped in this way. Contractual structures must align with contractors’ responsibilities, and national contracts which insert generic services into every prison should be abandoned in due course, or at least, made more locally sensitive. There may be a case for grouping a number of prisons within a single contract, to achieve economies of scale or synergy with other services contracted out, such as probation.
4. A solution must be found to the unacceptable conflict of interest within NOMS. An external regulator should be appointed, who would approve evaluation methodologies, and competition outcomes, and adjudicate on contractual disputes.
5. There should be regular, public evaluation of the working of competition, including comparative costs and performance, and the overall impact of competition; and greater transparency. There should be a clear public statement of what data cannot be disclosed for reasons of commercial confidentiality, and why, which should be as narrow as possible. All other information should be freely available, for example, private sector staffing levels and pay, the range of bid prices, service specification, performance penalties, actual annual payments, disclosure of contracts, subject to only essential redactions.   The external regulator should oversee evaluation, and transparency policy.
6. New operators must be encouraged into the market to maintain competitiveness, as matter of urgency. (What deters new entrants most is the hesitant, stop-start nature of competition: a long term programme would give assurance needed that investment in building bid teams will be worthwhile.)
7. The danger of pushing prices too low could be alleviated by specifying mandatory minimum staffing levels in contracts (and for that matter, in all public sector prisons) - and this should be staff actually in post.  Similarly, a restriction on high staff turn-over rates (historically, as damaging as low staff levels).

 
(1)  Crewe, B. et.al. (2011) 'Staff culture, use of authority and prisoner quality of life in public and private sector prisons', Australian and New Zealand Jo. Of Criminology, 44 (1).  Last year the same team published an intriguing study of the transition of Birmingham Prison from public to private sector, showing a significant improvement in prisoner quality of life: Liebling, A. et. al, 'Birmingham prison: the transition from public to private sector and its impact on staff and prisoner quality of life - a three-year study', NOMS (2015)
 
 
 'REFORM PRISONS' THE CASE FOR A MORE EVOLUTIONARY APPROACH
 
The Lord Chancellor's pause for thought on 'reform prisons' is welcome. Her predecessor's proposal lacked detail, took scant account of evidence and experience and its benefits were asserted, not argued. In particular, the following are relevant:

1. Centralisation is not the cause of current problems. On the contrary, over the past quarter century all governments increased central control and by so doing, greatly improved service quality and cut costs. In the early '90s, high profile escapes revealed a lack of basic management at every level; so, for the first time, standards were set for how prisons should be run and to measure how they were in fact run. In the 2000s, a series of near-catastrophic breakdowns led to performance metrics and management to identify problems ahead of time, and so achieved improvement up to 2010. In the 2010s, tight central specification of activities and staff numbers were the only way huge budget cuts could be achieved quickly.
2. The Labour Government's ambitious programme to reduce re-offending, backed by several hundred millions of pounds a year for new programmes based on research evidence of 'what works', seems now forgotten. In fact, between 2002 (when the new programmes were up and running) and mid-decade it achieved about a 10 % reduction in the rate of adult re-offending - about what research says should be achievable - as well as reductions in both the frequency (number of offences committed by re-offenders) and seriousness of re-offending (see figure 2). (That is, the % of released prisoners who re-offended fell from 27.6% to 24.7%, a fall in the rate of about 10%). This was a valuable result – translating, I estimate, into about 80,000 fewer recorded offences a year, but well over 100, 000 a year if you include those not recorded – but completely dwarfed by the massive fall in crime driven by wider social changes which we do not understand. Also relevant is the ‘Payment by results’ pilots to cut re-offending at Peterborough and Doncaster prisons, aborted by Mr Grayling. These had some features in common with the reform prison idea – local management freed up to do things their way, and judged on results. On the data we have, the reductions achieved were, again, fairly small.
3. in the early '90s the Conservative Government introduced privately run prisons intended, exactly like 'reform prisons', to encourage innovation and reduce re-offending. Innovation was in fact limited and in many respects, has since been adopted by the public sector.

Figure 2: reduction in adult re-offending under Labour Government, 2002-2010

Source: MoJ re-offending statistics
 
All this suggests the following critique of the 'radical autonomy' concept (by this I mean prisons as semi-autonomous statutory bodies, with wide freedom from central control, on the Academy model for schools).

1. There is a strong case for more devolution to Governors, but it should be developed pragmatically

 
Centralisation and decentralisation often moves in cycles, and there is a good case now for more devolution, after unprecedented centralisation.  Governors know their jails best, sometimes need to react quickly and after all, they are accountable for performance.
 
But it should be pursued pragmatically: what, exactly, would make a difference?  And does it really require an entirely different operating model, and a new statutory framework? What Governors often mention is exasperation with slow central recruitment, the need for flexibility to pay more for hard-to-fill posts, the imaginative use of small-scale ITC by privately run prisons and inflexible centrally run contracts for services in prisons.  Some of this could be achieved without major organisational change, through devolution or improving central services.
 
            2.  But there are limitations, including cost
 
But not all these functions can sensibly be devolved to every prison. There is an argument for more local pay flexibility (because local labour markets differ), but it would be inflationary (pay for some posts and in some areas would go up, but where pay is more than the local labour market requires, it would not be reduced). Staff movement between prisons could be affected.  Opt out from central contracts would raise costs. All prisons require similar supplies and services – energy, food, clothing etc. These must be cheaper if purchasing power from over 100 sites is aggregated. Central contracts for FM and rehabilitative services have only just been put in place and can't now be cancelled. Savings made by providing common services would be undone if prisons opt out. Back office functions have been centralised to cut overheads. Re-creating local expertise on procurement, ITC and HR, essential to the ‘radical autonomy’ model, would be very costly.
 
The prison system is a national one. Prisoners must move between prisons, which would be difficult if programmes and privileges differed widely; and big differences in treatment would be inequitable, could hinder preparation for release, and might be open to legal challenge.
 
            3.  It is very unlikely that 'radical autonomy' would transform performance
 
Improved performance and less re-offending through innovation were benefits that the Conservative Government in the early '90s said would flow from privately run prisons. But they have not outperformed publicly run ones. They have innovated, but mainly on staffing levels and pay, and construction times and cost (described in my other paper) - and the public sector has already adopted much of this.  More innovative use of ITC has been useful but has not transformed performance. This seems consistent with experience of private prisons abroad.  Scope for innovation is inherently limited by constraints of prison routines, objections to wholesale substitution of ITC for human contact, and risk.
 
On re-offending, the Labour Government's programme showed that even with several hundreds of millions a year extra funding and close attention to then new research evidence of 'what works', gains though worthwhile, were at the margins, and that is consistent with what the evidence suggested should be achievable. The results of the PBR pilots at Peterborough and Doncaster also showed only modest gain. Now, with no new money, much tighter staffing and not much new research evidence, and with rehabilitation programmes recently contracted out on long term contracts, there is no reason to think that big step reductions are achievable. (Not an argument for giving up, indeed there are other approaches that could be tried: but an argument against massive organisational change based on belief that a step reduction in re-offending would result.)
 
           
4.    Accountability and control
 
It is unclear that ‘radical autonomy’ would be compatible with proper accountability.  The model is borrowed from the NHS and schools; in both cases, user choice is a theoretical mechanism for improvement, but this hardly applies in prisons!  Hospitals and schools were never subject to the same high degree of ministerial accountability as prisons. When things go badly wrong in prisons, prompt intervention is needed, and the public expect Government to take responsibility: Mr Howard's efforts in 1994-95 to distance 'policy' from ‘operations' ought to be present in our minds. Moreover, the improved performance of prisons in the 2000s was due to increased central control, so that potential problems were spotted ahead of time, and the centre intervened before they materialised. That is not compatible with a 'radical autonomy' model where you wait to see what performance governors can achieve and impliedly, only intervene if things go badly wrong. For Governors, the 'radical autonomy' model might offer the worst of both worlds, where they publicly carry the can for decisions made centrally (on penal policy, funding, pay and central contracts).
 
5.     Other solutions may be more relevant to current problems and more productive
 
Most informed observers see the main causes of current problems as too many prisoners, too few staff and initiative overload, along with new drugs. 'Radical autonomy' will help with none of them.
 
We have not had intelligent, informed discussion of sentencing for a very long time, rather, a willed absence of penal policy (and absence of policy is of course itself a policy choice).  We have doubled the prison population since the mid '90s, at vast cost, yet in the same period, crime has halved: surely some serious examination of what exactly we have got for all that money is long overdue? (It is clear that this was not cause and effect – that the fall in crime was not achieved by increasing the prison population). 
 
Ministers tend to under-estimate the cost of major reorganisation, not least in terms of diversion of management effort and focus (and change overload has clearly contributed to operational problems in recent years). Another bout of wholesale organisational change would be unhelpful.
 
On cutting re-offending, other options might be as or more effective, such as ‘half-way houses’ – or just increasing funding for resettlement services that are known to be effective.
 
Conclusion
 
Increased devolution to Governors is desirable, but should be pragmatically developed and implemented within existing structures. It is unlikely to transform performance. Other approaches could address current problems more effectively.