Will Payment by Results ever get a fair crack of the whip?

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The last Comprehensive Spending Review – a document bearing the mark of HM Treasury – claimed to be underpinned by the Coalition Government’s guiding principle of “increasing diversity of provision in public services through further use of Payment by Results (PbR)”. But since then, statements coming out of that department have been more likely to undermine PbR than commit to it. At a recent conference, Sharon White, HMT’s Director General of Public Services said, “We take a pragmatic view of whether Payment by Results works. It is quite hard to get a firm handle on the numbers…some of us who have been around a long time get very nervous about panaceas. We’re taking a very cautious approach on whether this is going to deliver better value for money compared to direct public spending intervention.”
Certainly, PbR is not enjoying great press at the moment – with many small charities claiming to have suffered from poorly designed contracts as part of the Work Programme. But in other parts of Whitehall, civil servants and Ministers must be shaking their heads in frustration at such statements, and wondering if PbR is going to get a fair crack of the whip. Many departments and Local Authorities are involved in developing, trialling, and delivering PbR contracts. All officials who work on the subject agree that PbR is a vitally important to the improvement of public services, as well as being a work in progress, with more iterations and innovations needed (although many PbR contracts are up and running, and working well). The thought that the Treasury may be briefing against a concept which requires momentum, not deceleration, is dispiriting.

This is not to say that the Government’s commitment to developing PbR shouldn’t be a measured one. Impetus works day to day with organisations that are either delivering PbR contracts now, or may do so in the future. We’re also social investors ourselves, as is The Private Equity Foundation, through the DWP’s Innovation Fund, and we’ve always raised an eyebrow at some of the more hyperbolic claims made for it by Westminster and Whitehall. In particular, the belief that PbR will reduce expenditure has never looked exactly evidence-based. The real promise of PbR is that the state will spend its money on services which deliver outcomes proven to be valuable, and not on “business as usual” activities and processes which may not have any meaningful impact on their recipients. You don’t have to be an idealist to imagine that such services may result in long-term savings to the public purse, but it is far from certain that any of these will be immediately cashable. Equally, one need not be a sceptic to think HMT may be more interested in these savings than in the “value for money” to which White refers.

PbR is a developing area of practice – more work is needed in terms of defining outcomes, setting incentives, and sharing rewards in ways which make sense for commissioners, investors, and delivery organisations. There are barriers to this development, and one in particular relates to incentives for Local Authorities. Local agencies are expected to take on much of the risk – and most of the trouble – of identifying services which could be commissioned on a PbR basis, designing this new procurement, and possibly engaging with private social investors. If a social enterprise delivers a programme that gets a troublesome local NEET population into education, training or employment, then the Local Authority will have spent its budget wisely, and will almost certainly have generated some savings. But the greatest, and most enduring savings, will accrue to HM Treasury in terms of tax take, and to DWP in terms of reducing spending on welfare. The police, and local justice agencies, may also feel the benefit in terms of decreased levels of crime and anti-social behaviour.

However, there is currently no way, and there doesn’t seem to be much will, to share any of these savings with the Local Authority – or, indeed, the delivery organisation – who, through their innovation, were directly responsible for them. Council leaders and local government experts agree that this is a major disincentive to investing in the time and training required to trial PbR and Social Investment Bonds (SIBs). As further spending cuts come down the line and Local Authorities’ internal capacity is squeezed, this inability to invest in the non-urgent will only increase. The Cabinet Office is attempting to unblock the pipeline with its Social Outcomes Fund, which “tops up” outcomes payments when a local agency, for example the police, won’t contribute themselves. A more sustainable solution for the future may be Community Budgets, currently being piloted in Greater Manchester. These allow multiple providers of public services to share budgets.

Those of us working with delivery organisations are taking a balanced view of PbR, understanding both the potential but also the challenges. We’re committed to the concept, but know that most innovations need to evolve over time. The Treasury’s ‘balanced approach’ may be heard as casting doubt on the efforts being made at local level to embed PbR. We think the Treasury can avoid the pitfalls of hyperbole while striking a more positive tone. If public services are to become better – and better value – commissioners must be supported in testing new methods of delivery, and not unnerved. The status quo is not working for our communities. Innovation cannot happen in Whitehall alone, nor always under Whitehall’s control.

Impetus − The Private Equity Foundation
About The Author
Jenny North is Director of Policy and Strategy at Impetus-PEF. Jenny joined Impetus-PEF from Relate, where she served as Head of Public Policy for six years. Prior to this she held policy positions with Maternity Alliance and New Policy Institute. Her experience also includes working at the Home Office as a Crime and Policing Analyst. Jenny holds a degree in Philosophy and Theology from Oxford University. Follow Jenny on Twitter: @JayEeeEnn

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