The Government’s Plans for Competition in Prisons

By Julian Le Vay

Last autumn Rory Stewart announced the most ambitious programme ever for competition in prisons, indeed one of few government programmes I can recall extending a full decade ahead.

It would transform the Service – 10,000 places in a dozen or so old prisons would close and be replaced, and as the public sector are seemingly not allowed to bid, the proportion of prisoners held in privately run prisons, already the highest in the world, would increase to nearly 30%. Construction would of course also be done by the private sector, as always, but conventionally funded (though Stewart still has hopes of resurrecting some form of private finance in future.) The programme also includes re-competition of existing prison contracts as they fall due, so the total offered to the private sector would be over 20,000 places, at a contract value for operations of between £4bn and £5bn, plus around £1bn for sites and construction. Big money, after many years without competition (the last round started in 2011, much of it later aborted).

But will it actually happen? The odds are stacked heavily against it.

First, our political system does not favour long term strategies, today less so than ever. By 2029 there will have been at least 2 General Elections, probably 3 or 4 – at the time of writing, one seems likely within weeks. Both Labour and the SNP are implacably opposed to more privately-run prisons – and over the past 22 years, we’ve had a Tory majority Government for only two of them. Polls show the public also opposed. Even within Tory-lead Administrations, there has been constant policy churn – Secretaries of State for Justice have lasted about 18 months on average in recent years, with little policy continuity between them. Right now, both Gauke and Stewart have talked of resignation, on differing grounds (proving the point, Stewart left post while this article was in press, after less than 18 months in office).

Second, population pressures could derail ‘new for old’, indeed have already begun to do so – the MoJ have conceded that the first new prisons will have to be used to accommodate the projected increase in numbers, thus ruling out closures. Gauke’s proposal to cut sentences of 6 months or less shows little sign of actually happening, and must await not only legislation, but the restoration of a functioning probation service. Even then, it would cut numbers by little more than 2,000, depending on exceptions, the degree to which sentencers upped tariffs to over 6 months instead, and subsequent imprisonment for breach of community sentences. That’s less than the population rise by 2022 on the latest projections. Absent any more fundamental review of sentencing, we could expect the population rise by 2029 to require 3 new prisons. So, not ‘new for old’, just new.

And that means, third, affordability is an obstacle. The new prisons will be significantly cheaper to run. But if population pressures mean old prisons cannot be closed, all the running cost of new ones is additional. On capital, new prisons cost around £130k/place. Will old prisons fetch that much? Holloway did so – but outside central London? Stewart himself does not think so – he told the Justice Committee that receipts will not cover much more than a third of the costs of construction and (where needed) new sites. So even if old prisons could be closed, there will be large net capital costs, maybe half a billion or more. The Treasury is unlikely to be helpful, given that MoJ already has a continuing structural deficit of well over £1bn a year. The Treasury have always disliked the never-ending growth in prison numbers, and endless crash programmes to meet it. They are surely likely to use the excellent recent report by the Justice Committee to demand a fundamental review of sentencing, and rightly so.

Moreover, one has to see this in the context of the fiscal pressures across Government, in a depressed post-Brexit economy, with the NHS, social care, housing, schools, police, roads each needing billions more, after years of austerity, just to maintain minimum acceptable services, not to mention the huge deficit in defence spending plans, and that’s before Trident. Who would put prisons at the front of that queue?

A fourth issue is the supplier base. Since 1997, Government has repeatedly enticed new players into bidding for prisons – a dozen of them at least, by my count – before invariably awarding the contract to one of the existing operators, indeed Government allowed the supplier side to consolidate to only three operators in 2008. Of those three, two are still awaiting possible criminal trial, following the scandal of over-charging for electronic services, referred to the Serious Fraud Office nearly 6 years ago (and still no result – what on earth are the SFO doing?). The MoJ now says, once again, that it is keen to attract new entrants, and three are in the running, all with some experience of prisons and offenders. But of these, Interserve is now in administration, MTC has not itself exactly distinguished itself either running prisons in the USA or probation here, while MITIE, whose public-private model was shamelessly stolen by the MoJ in the last competition, surely exemplifies the triumph of hope over experience.

There aren’t many other qualified players around, and they must all look balefully at the MoJ’s (and before them, the Home Office’s) long history of marching aspiring new entrants up that particular hill and then down again.

But assuming the programme does go ahead – what would it achieve? Obviously, new prisons will be vastly better than old Victorian ones, in physical conditions, facilities, regimes and operating costs. They will also implement the MoJ’s plan for a more rationally ordered new estate, although there is a big question mark over the MoJ’s plan to massively expand video conferencing to replace expensive production of prisoners at court, partly to cut costs and partly to allow new prisons to be located far from the city centre jails they will supposedly replace. Penelope Gibbs, of Transform Justice, has been a lone voice raising concern that video conferencing may degrade the quality and indeed openness of justice: she is right that objective research is badly needed before we create a system dependent on it.

On design, the MoJ shows signs of learning from the mistakes of Berwyn, the last new build – as well it might, what with Berwyn still half empty 2 years after opening, neither healthcare nor workshop facilities regarded as fit for purpose by those using them, and the prison designed so that most prisoners must share cells, reversing decades of humane penal policy. The new prisons will have mostly single cells, and smaller house blocks, each with their own built in facilities, we are told. But then, we were told Berwyn would be marvellous.

But what, specifically, does competition add? After all, ‘new for old’ could be done entirely within the public sector. What does the private sector add? Stewart says, rightly, that neither public nor private sectors run prisons consistently better than the other – much though ideologues on either side would like to think so, that is what the evidence demonstrates (the MoJ’s own rankings, Inspection reports and research). Indeed, it’s somewhat embarrassing that the same Minister has just agreed with G4S to cancel their contract for Birmingham, though the lesson there is more complex than just G4S screwing up – it is that very tight margins make it commercially impossible for a contractor to recover a troubled prison by putting more of their own money in (in oral evidence to the Justice Committee, G4S said that they do not make any profit from Birmingham. That is actually not good news for anyone.)

Stewart does think the private sector have the edge in innovation – he seems to be thinking mostly of ITC, phones and computers in cells, kiosks used by prisoners to order menus and arrange visits, that sort of thing. It’s true the private sector has been ahead in such things, and that they are valuable, both in cutting costs and improving prisoners’ ability to access services. But they have not been game changers. (And the Chief Inspector of Probation reports rather little innovation by CRCs in probation, and some of it decidedly dubious.) Moreover, the reason public sector Governors haven’t been so inventive is they haven’t been allowed to. That is partly political – I’m told that when a previous Minister heard of phones in cells in private prisons, he wanted them taken out at once, because it might seem ‘soft’. And partly because public sector Governors don’t have access to capital for such things, and even if they did, would be reliant on the ITC people in the MoJ, not necessarily the provider of choice. In my experience, Ministers are prone to the fascination of shiny new gizmos – and underestimate both the extent to which the public sector innovates, and the importance of innovation that is not about new tech, but about how to work with people.

Stewart also stresses the need for new prisons to cut reoffending. But there is no reason at all to suppose the private sector do it better. The now forgotten Pay by Results pilots in private prisons produced ambiguous results (and there was no public-sector experiment to compare it to). Recent research suggests the big differential is not who runs the prison, or how they use tech, but how safe the prison feels to prisoners. (Moreover, the extent to which changes in reoffending rates are a measure of the performance of prisons is moot: the rate has been falling since 2014, i.e. precisely the period in which the prison system has descended into violent chaos.)

Looking back to the 1990s and 2000s, there was then a clear purpose and dynamic to competition. Successive leaders of the Service have said the main value of competition was to help them drive improvement in a then conservative public sector which had been, when last a monopoly, both a disgrace in terms of quality, and extremely wasteful. The private sector showed that prisons could be run well, and built well and much quicker, for much less, and that prisoners could be treated with more respect by staff not soaked in traditional prison culture. That was the real innovation, which contributed to the huge improvement between Woolf and the late 2000s.

None of that really applies now. Scandals still exist in the public sector, but not nowadays of wilful neglect or brutality by staff, as at Brixton or Scrubs in the 1990s, rather of well-intentioned staff unable to control or properly care for prisoners, or deliver adequate regimes. No one thinks staff numbers can safely be driven down lower: on the contrary, everyone except Ministers thinks the key to restoring safety is more staff.

And it is the form of competition that is puzzling. In the past, public sector Governors knew that if they didn’t run a decent jail, another provider might be brought in. But now, the MoJ specifically rules out any form of direct public v private competition. It is competition, but only for new prisons, or existing private sector prisons, and only within the private sector. How can that drive improvement in the public sector? Nothing that public sector can do can seemingly halt the inexorable growth of the private sector. Nor will the public sector be able to show what it can do with a new prison (though it had its chance at Berwyn).

The closest to an explanation is officials’ response when questioned on the exclusion of public sector bids by the Justice Committee. They said public sector bids were expensive to mount and ‘divisive’. Costly, yes – a good bid may cost £500k to mount, but then, that’s less than half a per cent of the value of a 10-year contract. And ‘divisive’ – well, yes, that’s how all competition works, A against B. And isn’t simply handing every new prison to the private sector also ‘divisive’? (Come to that, isn’t it also ‘divisive’ to set SERCO against Sodexo?) Officials also argued that public v private competition is simply unnecessary, as they already know the cost of public sector operation. They just need the private sector to come in below that. There’s a hint that MoJ might over time alternate its approach – sometimes the public sector would have a free run, as at Berwyn, sometimes the private sector, as at Oakwood, depending on which the MoJ thinks has the cost advantage. But the two sectors will never compete. Nor will any prison ever move from one sector to the other.

To me, that simply doesn’t add up. First, the MoJ don’t in fact know what it would cost to run a new, large prison well in the public sector. The only example in modern times is Berwyn, which is still barely half full years after opening, for reasons the MoJ is remarkably coy about, cuts cost by enforced cell sharing (now apparently conceded to be a mistake), has serious problems with regime activities and high levels of violence. That’s not a benchmark, it’s a warning. Second, it ignores the point that competition is dynamic – it is the process of competing that gets people to come up with new and better (and cheaper) ways of doing things. If they never mount a bid, they won’t have that chance. Third, in house bid teams are or should be given more freedom than the MoJ usually allows Governors. Fourth, granted that market testing is a difficult business, potentially destabilising, and one wouldn’t want to be doing it on a big scale – still, shouldn’t there be some possibility of one sector losing a prison to the other sector? Otherwise, it’s not competition, so much as two separate estates. Fifth, the response suggests that the real purpose is simply to cut costs – and that the MoJ think the private sector will drive down costs lower than the public sector can.

Is the private sector still cheaper, despite all those cuts? Hard to say, since it is several decades since Government last produced any analysis of cost difference between sectors. On past research, there is reason to think the private sector are cheaper than comparable public sector prisons would be, because they get more work out of their staff, can set more locally sensitive pay and have cheaper pension schemes (though as the Civil Service scheme is unfunded, the degree of underfunding is unknowable). And, so far as one can tell (the MoJ won’t tell us) private prisons also, even today, have higher staff: prisoner ratios.

And there’s the problem. The evidence suggests that the private sector’s tighter staffing levels, which mostly worked well enough in the late 2000s, were in some cases too low to meet the challenges of a more difficult population, and the spread of the new drugs. One of the four prisons subject to the Inspectorate’s new Urgent Notification Procedure has been private, and privately-run prisons are not doing better than the public sector on MoJ’s own rating system. It’s not just raw numbers – it’s how many staff are actually available: the internal report on the 2016 Birmingham riot suggest that non-availability of many staff was a key factor. And the rate of staff turnover (high turnover = inexperienced and frightened staff) have been repeatedly highlighted in problem prisons, public and private. High turnover may of course reflect pay driven too low. A further race to the bottom is the last thing we need.

(By the by, it’s interesting that Stewart often references the excellence of Altcourse – fair enough, and well done G4S , but has he noticed that it is amongst the most expensive of the PFI prisons – when the contract was first let, it was no cheaper than the (by today’s standards) very costly public sector comparator. Cost certainly doesn’t guarantee quality, that we know, but the two are somewhat related.)

A solution comes to mind. Looking at Northumberland, Doncaster, Oakwood and Birmingham alongside existing old public sector prisons of the same type, it looks like the private sector might run bigger new prisons 30-40% cheaper per place, even if Birmingham shows that cheap can be too cheap. If the old prisons can then be closed, why not reinvest that saving in higher staff numbers and better regimes? The obstacle to that is the Treasury, aghast at the out of control overspend within the MoJ and the multiple programme failures we have seen there. An annual saving in prison operating costs of maybe £100m would be one of the few ways the MoJ could plausibly reduce that overspend – though it’ll take a decade to get there, on the most optimistic assumptions, even assuming ‘new for old’ is still possible. So, chances of the Treasury allowing the MoJ to keep the loose change from ‘new for old’ are tiny. (And the public sector might well ask why on earth they can’t have a go.)

It’s clear the MoJ are keenly aware of the cost dilemma. Briefing papers show that they are indeed aiming to trade cost for quality in bids, rather than going for the cheapest one that seems safe. But with the Treasury standing over them, they may not get much room for such trade-offs. And from a prisoner’s point of view, a brand-new prison that is unsafe may be better than an old prison that is unsafe – but not much.

I have argued elsewhere that prisons are one of the very few public services where the evidence exists to show that competition has been a public benefit, certainly by comparison with the public sector when last a monopoly. And I think, having created a viable private sector, it is worth investing effort in keeping it going, rather than lapsing back into monopoly. But I am unconvinced that this programme is the way to do it. And when I look at the massive agenda facing prisons today – the need to restore stability and safety on the landings, rebuild a body of experienced and confident staff, increase staffing levels in some jails, revisit starting pay levels, conduct a fundamental review of our over-use of custody and how best to tackle it and, in the process, rebuild a probation service shattered by botched privatisation – competition seems something of a side-issue. Solutions to these problems lie elsewhere – primarily with Ministers themselves, as policy makers.

Assuming the programme does go ahead, here are some ideas for how to benefit from past mistakes (including, long ago, mine):

  • Formulate an explicit plan for the development of a more competitive market – and announce it now. In the early 1990s, the plan was 12 privately run prisons, with 4 operators. Now that the MoJ are aiming at around double that number, they need 5 or 6 players. I think EU procurement rules would allow the need to develop competitiveness and attract new players to be a factor in contract award. And EU law may no longer be a constraint….
  • Announce ceilings for both the staff: prisoner ratio and staff turnover now, as a guard against a race to the bottom. And monitor and publish those data, instead of maintaining (as the MoJ does now) that is irrelevant detail best left to contractors. It’s not – it’s a vital sign of safety, or unsafety. We ought to know.
  • Set a minimum profit margin. That forcing contractors to operate on tiny margins or at an actual loss has been a major cause of failure is now well documented. It was part of the problem at Birmingham. I don’t know what that minimum figure should be, maybe in the region of 4%.
  • The spec must be right – require the right things to be done and measured, and have teeth if they are not done. At Birmingham, there were few measures that attracted financial penalties and not necessarily the right ones (not rates of violence or self-harm, for example). According to the Chief Inspector of Probation, the contracts for ‘through the gate’ services in prisons had only one performance target – to produce a piece of paper, the prisoners’ resettlement plan – regardless of what was in it or whether it made a difference in the real world. (Could we make use in contracts of the knowledge recently gained through research, that the success of a prison in reducing reconviction rates is strongly correlated with prisoner’s perception of safety?)
  • Experiment – a little. One has to be cautious, given the recent history of the MoJ’s contracting is of trying to be clever and getting it wrong – Carillion, electronic monitoring, probation. But, for example, I have always wondered why we continue to contract in separate silos for resettlement prisons, and the community services locally that manage resettlement in the community. Why not try, in one case where the geographical fit is good, wrapping them up in one contract?
  • Above all – learn. It is incredible that for two decades, the MoJ has done nothing to compare how public and private sectors manage their costs, or what each sector is especially good at, and why, or to explain to a sceptical public how competition works in the public interest. Let the future be shaped by knowledge, not ideology.

Julian Le Vay was formerly Finance Director of the Prison Service and then Director of Competition in the National Offender Management Service, and later worked for two companies providing justice services to Government. His book, ‘Competition for prisons: public or private?’, was published by The Policy Press in 2015. He writes about criminal justice at www.julianlevay.com