Competition for Prisons: Public or Private? 9781447313236

Citation preview

JULIAN LE VAY

COMPETITION FOR PRISONS

PUBLIC OR PRIVATE?

COMPETITION FOR PRISONS Public or private? Julian Le Vay

First published in Great Britain in 2016 by Policy Press North America office: University of Bristol Policy Press 1-9 Old Park Hill c/o The University of Chicago Press Bristol BS2 8BB 1427 East 60th Street UK Chicago, IL 60637, USA t: +44 (0)117 954 5940 t: +1 773 702 7700 [email protected] f: +1 773 702 9756 www.policypress.co.uk [email protected] www.press.uchicago.edu © Policy Press 2016 British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library. Library of Congress Cataloging-in-Publication Data A catalog record for this book has been requested. ISBN 978 1 44731 322 9 paperback ISBN 978 1 44731 324 3 ePub ISBN 978 1 44731 325 0 Mobi The right of Julian Le Vay to be identified as author of this work has been asserted by him in accordance with the Copyright, Designs and Patents Act 1988. All rights reserved: no part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise without the prior permission of Policy Press. The statements and opinions contained within this publication are solely those of the author and not of the University of Bristol or Policy Press. The University of Bristol and Policy Press disclaim responsibility for any injury to persons or property resulting from any material published in this publication. Policy Press works to counter discrimination on grounds of gender, race, disability, age and sexuality. Cover design by Qube Design, Bristol Front cover: image kindly supplied by iStock Printed and bound in Great Britain by CMP, Poole Policy Press uses environmentally responsible print partners

Contents List of tables and figures v List of acronyms ix Preface xi 1

Origins 1

2

Evolution 13

3

Related markets: immigration – two sectors, no competition 45

4

Youth custody

51

5

Related markets: electronic monitoring – fall of the giants

63

6

The quasi-market: characteristics and operation

77

7

Comparing public and contracted prisons

105

8

Comparing quality of service

109

Inset: Four prisons in trouble I-1 9

Costing the uncostable? Civil Service pensions

133

10 Costing the uncostable? PFI

143

11 Comparing cost

159

12 Impact of competition on the public sector

197

13 Objections of principle

223

14 Related markets: probation – how not to do it

237

15 Has competition worked?

253

16 Has competition a future?

263

Appendix: Prescription of operating procedures in 279 prison contracts Bibliography 281 Index 299 iii

List of tables and figures Tables 2.1 Three types of prison contracts 2.2 Contracted prisons, UK 6.1 Bidders 6.2 Market tests of existing HMPS prisons 8.1 Quality dimensions where contracted sector outperformed public sector (male locals) 11.1 Problems with financial data 11.2 Market tests: adjustments to in-house bids for Birmingham and Buckley Hall prisons 11.3 Market test results

14 16 95 98 124 162 170 172

Figures 1.1 Prison population and design capacity, England and Wales, 1980–92 1.2 Prisoners in police cells and cost, 1985–95 2.1 Total prison population and capacity, and growth of contracted sector, England and Wales, 1990–2015 2.2 Growth of prison population and of contracted sector, Scotland 1995–2012 2.3 Growth in proportion of prisoners held in contracted prisons, 1992–2014 2.4 The new contractual model 4.1 Youth custody estate, numbers and cost, 2005 4.2 Numbers in youth custody, 2003–14 5.1 Audit of contract management in MoJ (2013) 6.1 Growth of private sector by annual value of contracts (custody, escorts, electronic monitoring), England, Wales and Scotland 6.2 Market segmentation 6.3 Evolution of the supplier base 6.4 Global revenues of private sector operators (showing % from UK, UK public sector and UK custody) (2013) v

2 3 18 27 29 39 54 56 71 79

80 87 89

Competition for prisons

6.5 SPV structure for PFI prison 91 8.1 Performance of public and ‘management only’ 112 contracted prisons, 1994–99: control 8.2 Performance of public and ‘management only’ 113 contracted, 1994–99: regimes 8.3 NAO ratings of contracted prisons against public sector 115 comparators, 2003 8.4 HMIP ratings of prisons inspected, by year 117 8.5 How NOMS prison rating system works: example 119 8.6 NOMS ratings of all prisons, by year 121 8.7 Financial deductions from payments to contracted 130 prisons, selected years, England and Wales 9.1 Estimates of liabilities of unfunded public sector 137 pension schemes 9.2 Estimates of contribution rates required to fund 139 commercial final salary scheme, compared to PSCPS actual (pre-reform) 10.1 Termination costs of PFI contracts 152 11.1 Cost of ‘management only’ contracted prisons and 165 public sector comparators, 1993–99 11.2 Cost of ‘management only’ contracted and public 168 sector prisons, recent data 11.3 PFI prisons, UK, 1997–2012: price at contract award and 173 saving claimed against PSC 11.4a Construction cost of conventional and PFI prison 176 construction in 1990s (at 1999 prices) 11.4b First PFIs versus previous conventional build: 177 timescales (months) 11.5a Recent new prison builds, PFI and public: 178 timescales (months) 11.5b Recent new prison builds, PFI and public: capital cost 179 (£k per place, 2013 prices) 11.6 Structure of cost gap between sectors, 1996–97 data 180 11.7 Comparison of pay, pensions and terms and conditions, 182 public and contracted sectors, 2002 11.8a Public and contracted sector prisoners per staff 185 member ratios

vi

List of tables and figures

11.8b Public and contracted sector prisoners per staff member ratios (public sector versus PCOs contracted sector, male local and Cat B prisons) 11.8c Public and contracted sector prisoners per staff member ratios (Cat C prisons) (definitions as for previous figure) 11.9 Matching availability staff to need (hypothetical example of staffing of a wing) 12.1 Improvement in NHS hospital waiting times and prison escape rates, 1988–2000 12.2 Staff prisoner ratios, England and Wales and Scotland, 1999-2014, public sector prisons only 14.1 Proven reoffending rates since 2002, adults, by disposal 14.2 Management and contractual relationships within new probation services 2.4 The new contractual model

vii

185

186

188 201 209 242 248 267

List of acronyms ASI CAC CCA CNA CRCs DCMF FD FM FoI HAC HMIP HMPS IMB IND IP IPSPC IRCs KPI MoJ MQPL NAO NOMS NPM NPS NPV OCP PAC PBR PCSPS PFI POA PPPs PQs PRS PSA PSC

Adam Smith Institute Central Arbitration Committee Corrections Corporation of America Certified Normal Capacity Community Rehabilitation Companies Design, Construct, Manage and Finance Finance Director Facilities Management Freedom of Information Home Affairs Committee HM Inspectorate of Prisons HM Prison Service Independent Monitoring Board Immigration and Nationality Department Intellectual Property Independent Public Sector Pensions Commission Immigration Removal Centres Key Performance Indicator Ministry of Justice Measuring the Quality of Prison Life National Audit Office National Offender Management Service New Public Management National Probation Service Net Present Value Office for Contracted Prisons Public Accounts Committee Payment By Results Principal Civil Service Pension Scheme Private Finance Initiative Prison Officers Association (trade union) Public–Private Partnerships Parliamentary Questions Prison Rating System Property Services Agency Public Sector Comparator ix

Competition for prisons

PSPC PSPRB RTUs SCH SFA SFO SLA SNP SPOA SPV STC TR TUPE UKBA YTC

Public Sector Pension Commission Prison Service Pay Review Body Ready to Use Units Secure Children’s Home Skills Funding Agency Serious Fraud Office Service Level Agreement Scottish National Party Scottish Prison Officers Association (trade union) Special Purpose Vehicle Secure Training Centre ‘Transforming Rehabilitation’ Transfer of Undertakings (Protection of Employment) Regulations 1981 and subsequent versions UK Border Authority Youth Treatment Centre

x

Preface I remember very clearly my reaction when I first heard of the idea that prisons might be run by private companies: ‘some bright young thing in a think tank, wanting to show just how far outside the box he can think – of course, it won’t survive ten minutes contact with reality’.1 Twenty-five years later, the private sector runs sixteen prisons, four Secure Training Centres and nine Immigration Removal Centres, together with all prisoner escorts and all electronic tagging, at a total cost nearing £1 billion a year. And it formed the central part of my own career. As Finance Director (FD) of HM Prison Service (HMPS) in the late 1990s, I was responsible for running competitions, and awarding and managing contracts, and also for improving the efficiency of the public sector. I then headed up competition policy in the new National Offender Management Service (NOMS). I later worked for two companies – one competing with HMPS to run prisons, the other in partnership with HMPS, competing together against the private sector2. So I have seen the issues from both sides of the fence and, indeed, on it. Whether that makes me an objective observer is for others to judge. I wrote this book because this has been a long-running, controversial and important experiment in public policy, and the time now seems right to review how well or how badly it has worked. Private provision of public services is a major political issue in this country, which has gone much further in prisons here than even the United States. And prisons have been one of the longest running – and most sensitive and most controversial – experiments in contracting out public services, and also one of the most complete.3 Yet there has been no comprehensive and objective review of the benefits or otherwise of competition in this country, or how well effectively it operated. Much commentary has been from prepared positions, whether of ideology or self-interest or both. (My own position, to be clear, is neutral between sectors: I am interested in what gets the best result for the money available.) xi

Competition for prisons

And some aspects, particularly comparative cost, competition policy, the significance of different approaches to procurement, and the impact on competition on the public sector, have not been satisfactorily examined. It seems time for a full review. The story now spans a quarter of a century – and there is a distinct possibility that it is coming to an end. This book is an attempt to answer the questions: • How did competition develop, in adult and youth custody? (Chapters 1, 2 and 4) • How did this curious ‘market’ work? (Chapter 6) • How did public and private sectors compare, on service quality and cost? (Chapters 7–11) • What was the impact of competition on the public sector? (Chapter 12) • Are privately run prisons objectionable on principle? (Chapter 13) • In sum: Has it been worthwhile? How well was it done? (Chapter 15) • And what of the future? (Chapter 16) Interspersed between these chapters are case histories of competition, or the lack of it, in ‘related markets’ – services just outside the focus of the book, but having a direct bearing on competition in prisons, or helping illustrate it by contrast : immigration detention (Chapter  3); electronic monitoring (Chapter  5); and probation (Chapter  14). There is also an account of four prisons, two publicly and two privately run, which got into serious trouble around the turn of the century: I use this to look at similarities and differences between the sectors. I am not a criminologist, and this is not a work of criminology. It is a study in public policy and its implementation. I am concerned with the practical issues that concern managers, politicians and, I think, the general public: How well do our institutions do what we want of them? What do they cost? Why do they go wrong? And what could we do to get better results? A word about words. ‘Privatisation’ has historically had a particular meaning: the permanent transfer of an asset into the xii

Preface

private sector, as with gas and electricity services in the 1980s. That does not occur in these contracts. Rather, they provide for the private sector to run a facility for a set period. I therefore use ‘contracted out’ rather than ‘privatise’, and ‘contracted’ or ‘privately run’ prisons rather than ‘private prisons’. HMPS can, confusingly, mean, at different times or in different contexts: the entire prison system; or the public sector part of it; or the customer for the private sector. I try to make the distinctions clear. NOMS was created in 2003: initially, HMPS continued as a separate, purely public sector entity, with NOMS managing contracted prisons. From 2007 they were brought together again. If this seems confusing, I can only say it was confusing at the time (and that confusion is part of the story). The Ministry of Justice (MoJ) took over responsibility for prisons from the Home Office in 2007. At the time of writing, it seems that privately operated prisons may well be on the way out – brought there, astonishingly, not by left wing Labour reaction, but by a particularly right wing Conservative Secretary of State, Chris Grayling. Having already abandoned the Private Finance Initiative (PFI) and suspended market testing, his decision not to allow the private sector to compete to run the new mega-jail at Wrexham closed off the last route for competition. He did so because he had forced pay and staffing levels so much lower in the public sector that he believed the case for the private sector operation of prisons had been weakened. In my last chapter, I ask whether he was right. Still, because of the length of PFI contracts, and the cost of terminating them, there will be privately managed prisons into the 2030s. And 20 years is a very long time in politics. I am grateful to numerous colleagues, serving and retired, in both sectors who gave me help, advice, information and views. Most were prepared to talk on the record, but a few not, for professional reasons – such sources are indicated as ‘private communication’. I would like to thank Mike Hough at Birkbeck College London, and Julian Roberts at Oxford, for help in getting me going. I am especially grateful to Phil Wheatley, who read the whole draft and made many helpful suggestions. John Ralph was helpful on pensions, Andrew Bridges and Savas Hadjipavlou xiii

Competition for prisons

on probation, Alan Kittle and Brodie Clark on immigration detention, David Kent on PFI, and Ellie Roy and Malcolm Stevens on youth justice. Paul Griew kindly let me see his recent dissertation. I myself never worked in a prison, but writing this book has reminded me what a privilege it was to work closely with so many who struggled with that most difficult, ill-thanked and vital of jobs in a civilised society – running prisons that the rest of us need not feel ashamed of and, on a good day, might even be proud of. Julian Le Vay Oxford, 2015 Notes I was not alone: Young recounts ‘Initially, most people thought it was a joke’ (Jones and Newburn, 2005).

1

2

Neither successfully.

3 With contracting out in the NHS and schools in the 1990s and 2000s, the core service remained with the public sector.

xiv

1

Origins Prologue Ironically, given that privately run prisons are identified with ‘Thatcherism’, the outsourcing of the State’s use of custody began much earlier – and under a Labour administration.1 In 1970, the Home Office contracted with Securicor for custody of immigration detainees at Heathrow and elsewhere. But after initial protests by pressure groups and Labour MPs, interest died quickly away. The state of the prisons There can be few public service monopolies harder to justify than HM Prison Service (HMPS) in the 1980s. Prisoner numbers increased dramatically in the second half of the decade (Figure 1.1). The rise was primarily in remand prisoners, who already suffered by far the worst conditions. The Thatcher administration was doing something about it – building 22 new prisons plus 8,000 more places within existing prisons. But construction was painfully slow – in some cases taking seven years from issue of the design brief to opening – and cost and time overruns were the rule (see Chapter 11). As a result, this huge building programme failed for much of the decade even to keep pace with rising numbers, and prisons remained horrifically overcrowded. In 1987, some 19,000 prisoners were held two or three to a cell designed to hold one, with those prisoners enduring the squalor of others defecating into buckets inches from their bunk, the bucket remaining 1

Competition for prisons

Figure 1.1: Prison population and design capacity, England and Wales, 1980–92 Population

Uncrowded capacity

60,000

50,000

40,000

30,000

20,000

10,000

0 80

81

82

83

84

85

86

87

88

89

90

91

92

Source: Prison Statistics

there for many hours. And not just at night: in many prisons, prisoners were locked in their cells most of the day. Regimes were far more restricted than two decades earlier (King and McDermott, 1989). Hundreds of prisoners had to be held in police cells, at vast cost (Figure 1.2), others in a hastily converted ex-RAF site. The reality of prison life in the 1980s is vividly recalled by a governor at Strangeways prison, pre-riot: ‘the smell of excrement and urine at slop out, the abysmal food that we served, the relationship between staff and prisoners where every second word was “fuck”, prisoners weren’t treated with respect, they weren’t treated with decency, visitors were treated as if they were prisoners as well, the place was run for the benefit of staff earning massive amounts of overtime at fantastic cost, where racism and brutality was rife.’ (Bastow, 2013) 2

Origins

Figure 1.2: Prisoners in police cells and cost, 1985–95 Numbers (left axis)

2,000

Cost £m (right axis)

120

1,800 100

1,600 1,400

80

1,200 60

1,000 800

40

600 400

20

200 0

0 85

86

87

88

89

90

91

92

93

94

95

Source: HMPS, annual reports and accounts; Prison Statistics

Small wonder that not even the Home Office believed prisons could turn offenders away from crime. This was the high point of the ‘nothing works’ period in criminology – and nowhere more so than in prisons. A 1990 White Paper declared that ‘nobody now regards imprisonment in itself as an effective means of reform for most prisoners’ and that trying to do so risked proving ‘an expensive way of making bad people worse’ (Home Office, 1990a). Management was appallingly weak. The Prison Officer Association (POA) was both powerful (because of the always present threat of industrial action, against which management had no real defence), yet anarchic (the decision to take industrial action had been delegated to branches and that threat was behind every single local disagreement with management). The POA often seemed opposed to anything that made prisoners’ lives better.2 Governors only controlled their jails with the agreement of their POA branch, and lived with the constant threat of disruption. In October 1990 there were industrial disputes in some 70 prisons (Home Office, 1991b). Both governors and 3

Competition for prisons

the POA felt a huge gulf between them and the headquarters, headed by career mandarins with no experience of working in prisons. ‘Management’ as such barely existed: headquarters did not set standards that prisons should operate to, and had little information about how prisons were actually doing, or where and how resources were being consumed. Yet this was absolutely not a service being starved of resources. On the contrary, it was gobbling up money like a black hole. In addition to capital spending on new prisons (roughly £1.8 billion at today’s prices),3 HMPS had dramatically increased both spending and staffing. Spending rose faster than any other public service – 30% in real terms in just four years to 1989–90 (HMPS annual report, 1989–90). Staffing ratios rose from one staff member per six prisoners in 1950 to 1:2.5 in 1989–99.4 Yet regimes did not improve: they got worse. It wasn’t clear why; but the Service was massively inefficient – and getting worse. Not only did the Service provide appalling conditions and impoverished regimes, it was barely under control. In one year, 1989–90, there were 67 ‘acts of concerted indiscipline’; and 49 incidents where prisoners got onto the roof (HMPS, annual report, 1989–90). The Prison Service could not even keep them inside prison: each year, hundreds escaped, and thousands absconded. In 1986 this unholy mix of poor conditions, union irresponsibility and management incapacity exploded when management at last tried to get a grip on staffing levels. The POA for the first time deployed the ‘nuclear option’ of industrial action: management’s worst fears immediately materialised. There were disturbance at 40 prisons: several were partly destroyed, 800 places lost and 45 prisoners escaped (Home Office, 1987). There were again serious riots in several prisons in 1988 (Lindholme, Haverigg) and 1989 (Risley). In 1990, the entire prison system erupted in the most serious breakdown ever known. One of the largest prisons in the country, Strangeways, was destroyed and held by rioters for four weeks as prisoners demonstrated the incompetence and impotence of the Prison Service from the prison roofs for the TV news, day after day. 4

Origins

The 1990 riots so terrified the government that it started to implement the investment in renewal, moral as much as physical, recommended by the subsequent Woolf report (Home Office, 1991b), and to bring the prison population down, through legislative and other means. In the early 1990s, it was even possible to close some small prisons.5 But, by then, the privately run prison was already a reality. Preparing the ground With hindsight, what is striking is not how fast, but how slowly the Thatcher administration moved from privatising utilities to introducing competition to public services. Prisons were the earliest example of outsourcing a major, complex, people-based public service: but it was not until just after Thatcher had left office that enabling legislation was put in place. The first suggestion, in 1984, by the Adam Smith Institute (ASI), apostles of neo-liberalism, was not taken very seriously (ASI, 1984).6 The ASI argued that the private sector could build more quickly and operate more cheaply. By 1987, Peter Young of the ASI was claiming that privately run prisons in the US were better at pretty much everything: food, healthcare and reducing re-offending (Young, 1987). Such was the dire state of our prisons, and lack of confidence in their management, that more traditional Tories, and some prison reformers, also thought solutions might have to involve the private sector. A 1985 Tawney Society pamphlet pointed out that remand prisoners, though presumed innocent, suffered the worst prison conditions, and argued that a privately run remand system, with the right safeguards, might be the best route to improvement (McConville and Hall Williams, 1985). Lord Windlesham, a liberal Tory and former Home Office minister, also argued for a privately run remand system quite separate from the existing service and with an entirely different ethos, supported by the Chief Inspector of Prisons (Windlesham, 1993). Other reformers worried about prisons run for profit, but thought some form of alternative provision might be better than continuing public sector monopoly (Taylor and Pease, 1989). 5

Competition for prisons

The route to legislation The process by which this idea, at first rejected out of hand on all sides, slowly found its way into government thinking and then legislation is an interesting – and not very edifying example – of modern policy making.7 The first significant event was the virtual hijacking of the Home Affairs Committee (HAC) inquiry into contract prisons by two Tory members, Edward Gardner and Sir John Wheeler, both of whom had, or were shortly to acquire, roles in the private security business.8 They went at the invitation of the Corrections Corporation of America (CCA) to see American prisons, but actually saw only saw one adult jail run by CCA (but no publicly run ones). On their return, their praise was uncritical: literally, ‘there was nothing we could find to criticise’.9 The report was a travesty of a proper analysis, mentioning CCA 13 times in a report barely three pages long, and containing hardly any data (HAC, 1987). It argued that the advantages of the private sector were speed of construction, scope for deferring capital costs, and ‘architectural efficiency and excellence’. It appeared to accept at face value all the CCA had said: evidence submitted to the Committee that there was quite another side to CCA was brushed aside without any investigation (the Committee also ignored a major public–private partnership for prisons then being developed in France, a model curiously like that being adopted by the Coalition government in the 2010s10). Not only did the Labour members oppose the report, but several Tory members were unpersuaded, choosing not to attend for critical votes.11 The report gained little traction immediately. Traditional Tories were more of an obstacle than the Opposition. Douglas Hurd as Home Secretary initially rejected the very idea of privately run prisons and seemed to be thinking merely of bringing private sector expertise to bear on the prison building programme (HC Deb 16  July 1987, vol. 119, col.  1303). Initially, even Thatcher was unconvinced, telling Windlesham in summer 1987 that “our minds remain open. But … there would clearly be many problems to resolve … At present the balance of the argument seems to be against moving in this direction …” (Windlesham, 1993). 6

Origins

But the HAC report had brought the idea into the mainstream. The Conservative Study Group on Crime again touted the example of CCA – Wheeler was a member – and recommended ‘an experiment’ with a privately run prison, though already confident that ‘generally, it seems desirable to privatise as many prison services as possible’ (Conservative Study Group on Crime, 1986). Meanwhile, commercial interests had begun to engage: and they were very keen. Home Office officials had begun to explore possibilities with the City.12 Michael Forsyth MP, a ‘prominent privateer’ linked to the ASI, was active behind the scenes. A consortium, Contract Prisons, was set up in autumn 1987, hiring a major PR company to mastermind its lobbying campaign. Other consortia followed. In September 1988 a huge dinner at the Carlton Club – chaired by Gardner – was attended by commercial interests, lobbyists, right wing think tanks, Tory MPs and Whitehall special advisers (Ryan and Ward, 1989b). Money was on the march. Home Office ministers were pushed slowly along. In autumn 1987, a Home Office minister was dispatched to the US. In early 1988, the government published a less than enthusiastic response to the Select Committee (American experience was still very limited, offered no ready blueprint, the legal and operational cost was very different here; HAC, 1988). But Hurd did commission a Green Paper on the role the private sector might play in ‘all aspects’ of the remand system, though handing over management to the private sector would be ‘more difficult’ than using outside expertise to build remand centres faster, which seemed to be how he saw the private sector helping (HC Deb 30 March 1988, col. 1085). Hurd was more positive about a privately run prisoner escorting service (the existing service, run by the police and Prison Service in the margins of their day jobs, was highly disruptive and inefficient). He also commissioned a more detailed study of the practicalities of privately run private remand centres. The Green Paper was published in July 1988: still very cautious, it commented, slightly acidly, that ‘different visitors to the US have come to quite different conclusions’ (Home Office, 1988). The Deloittes report was published in March 1989 (Deloittes Haskins Sells, 1989). This was the first attempt 7

Competition for prisons

to work through the details of how outsourcing would actually work, and many of its proposals were eventually adopted. But it was cautious about costings, noting presciently that the balance between reducing spending and improving conditions was for government to determine, and recommended further work. Hurd conceded there could be “benefits” (just what benefits was not very clear) but proposed still further work before any decision was taken on the “bold departure” of a privately run remand centre, while signalling possible legislation. But he carefully maintained a stout rear-guard action against the radical privateers: “We are not proposing to privatise existing remand prisons. We are not proposing to alter in any way the arrangements for convicted prisoners” (HC Deb 1 March 1989, col. 277).13 By mid-1990, the tide within the Home Office was turning somewhat against the private sector. Further work suggested that there might not be significant cost savings; meanwhile, the prison population had fallen, and the focus was shifting from building new prisons to refurbishing existing ones.14 The new Home Secretary, Lord Waddington, gave rather muted support for a privately managed remand centre: “the private sector could, if invited to operate remand centres, reasonably be expected to provide a good standard of service” (HL Deb 11 July 1990, cols 205–6). Waddington, a traditional Tory, was not instinctively an enthusiast for contracting out and was minded not to include powers for contracting out in the forthcoming Criminal Justice Bill. But he prudently thought to check with No 10: the Prime Minister (whose Policy Unit had been closely monitoring the Home Office’s lack of zeal on the subject) strongly disagreed, and the clauses went in that would enable the contracting out of the management of the new remand centre being built at The Wolds, Lincolnshire (Windlesham, 1993). Waddington and Hurd had been adamant that the experiment should be limited to a new remand centre, where the overcrowding problem was most acute and least acceptable – not new prisons for convicted prisoners, still less private sector take-over of existing prisons. Other reasons for limiting the experiment to remand centres were that time a prisoner served was not open to manipulation by the private operator; and 8

Origins

that the regime should be more straightforward and so easier to specify and monitor (Home Office, 1988). So the clauses introduced limited the power to contract out to new remand prisons, in line with this thinking. In Committee, a Tory backbencher who had visited the US with the HAC proposed an amendment to extend that power to any type of prison, including existing ones. The Home Office minister rejected it, but offered to re-consider (Standing Committee Debate, 31 January 1991, cols 577 and 601). The new Home Secretary, Kenneth Baker, was more radically minded than his predecessor and on report, the government accepted an amendment, presented as ‘technical’, which allowed the government by Order to subsequently expand the powers to contract out all prisons. But the Home Office minister gave a clear assurance that “if, and only if, the contracted out remand prison proves to be a success might we move towards privatisation of other parts of the Prison Service” (HC Deb 25 February 1991, col. 720). The privateers soon swept aside this ministerial undertaking to the House. In December that year, Baker announced that an order would be made extending contracting out powers to prisons holding sentenced prisoners, for the new prison being built at Blakenhurst in the West Midlands. There had been no evaluation of The Wolds, which indeed only opened in April 1992 – a Labour MP quipped: “The Wolds experiment must be the shortest on record — by my reckoning, minus four months” (HC Deb 6 July 1992 col. 128). The minister assured the House that the Order “merely” applied to new prisons, not existing ones; and that the public sector would be able to bid to run new prisons (cols 121–2). But another order followed in December the same year, enabling market testing of existing public prisons (HC Deb 26  October 1992, col.  453). The privatising backbenchers had got their way. All of this was opposed root and branch by Labour: contracting out was wrong, the State must not delegate its power of incarceration; it would not work, private companies were not accountable, did not have the skills and would cut corners in pursuit of profit; and it was unnecessary, since the public sector could achieve whatever standards for improvement were required in the light of Woolf. 9

Competition for prisons

Three features of this story characterise the subject to the present day. The first was unwillingness (on the part of both advocates and opponents) to take a considered, objective look at the evidence. The privateers completely misrepresented the American experience, and did not wait for evaluation of The Wolds. Opposition was just as much a matter of ideological assertion, paying little attention to the very positive evaluation of The Wolds when it did come out. The second was curious imprecision about what competition was for – why it was a good idea. As has been seen, the answer was variously: quicker, cheaper build, ‘architectural excellence’, cheaper operation, or perhaps no advantage in cost at all, but better regimes, or humbling the POA, or challenging HMPS to change or ‘innovation’ (but about what and for what?): or just the catch all, ‘value for money’, which (as Deloittes pointed out) leaves it open whether you want more for the same, or the same for less. Or, simply, everything better (ASI, 1984). For such a bold experiment, it was curiously unclear exactly what hypotheses it was testing. The third was equal lack of clarity as to whether what was wanted was indeed direct competition between public and private sectors, or the development of a private sector in parallel to the public one, or a gradual transfer from one to the other. These matters were left for the new head of HMPS to grapple with – himself an import from the private sector. Notes The announcement was made by the incoming Conservative government on 24 July (The Times, 24 July 1970). But the contract had been signed on 1 July, only four working days after Maudling was appointed Home Secretary (HC Deb 5  November 1970, vol. 805 col. 414W). No one with experience of Home Office procurement would think it capable of issuing a contract from scratch in four days – even assuming the contract was Maudling’s topmost priority on appointment as Home Secretary. One can assume, therefore, that the outgoing Labour administration had done the preparatory work.

1

10

Origins

An example my own experience when working in HMPS HQ was POA obstruction of the first experiment in pay phones at open prisons in the early 1980s. We discovered a year later that they had been taken out of use on the governor’s orders, citing local POA opposition – but, characteristic of that period, he had thought it better not to tell us.

2

HC Debates 22 Oct 1993, vol. 230 col. 388. Capital cost of 21 new prisons since 1985. Figures revalued using Treasury deflator index, although as the original price base was unclear, this may be an underestimate.

3

Comparison over time is complicated by the ending of high levels of overtime under the ‘Fresh Start’ programme in 1989, which meant more staff were needed to supply the same amount of hours worked. 4

5

Finnamore Wood and Oxford.

6

See Note 1 to Preface.

In what follows I am much indebted to Ryan and Ward (1989a, 1989b), also James et al. (1997). 7

Wheeler was former Director General of the British Security Industry Association, and later Chair of Reliance Custodial Services Ltd; Gardner later chaired a consortium set up to bid for prison contracts, Contract Prisons, part owned by an American prison. 8

Guardian, 11  January 1989. Curiously, the only other person so uncritically enthused was the Guardian home affairs correspondent who went along with them (Guardian, 6 November 1986), though once back home, the paper soon adopted a critical stance.

9

10

Guardian, 1 August 1986.

11

Guardian, 5 December 1986.

12

Guardian, 11 January 1989.

In his memoirs, Hurd says he had become by mid-1988 more sympathetic to the idea of privately operated remand centres, because of the resistance of the POA to improving conditions: but judging by the Green Paper and his remarks in the Commons, it was hardly enthusiasm (Hurd, 2003).

13

Letter from David Mellor, Home Office minister, to Hennessey, 20 March 1990 (Windlesham, 1993).

14

11

2

Evolution There has now been competition for prisons for a quarter of a century in England and Wales – and for a much shorter period in Scotland. Its evolution is summarised here, to give context for the analysis in later chapters, and to highlight how slow and haphazard the process has been, and how it has been shaped by wider influences and by changes in the way competition has been staged. 1992–97: establishing a viable market When in 1992 Kenneth Clarke interviewed Derek Lewis to be the first Director General of HMPS appointed from outside the Civil Service, his only substantial question was what limits Lewis saw to the expansion of the private sector. Lewis replied that if privately run prisons could show good performance, none at all (Lewis, private communication). Clarke laid down no plan or timetable, and it was left to Lewis to devise a strategy: to create a viable private sector, it was necessary that at least four credible operators should between them run at least 12 prisons, holding about 10% of the prison population (Lewis, 1997). This programme – described as merely ‘an initial phase’ – was much slower paced than the private operators expected – G4 was said to be expecting 25% of prisons to be contracted out, of which they aimed for a minimum of ten.1 Lewis’s strategy has in fact never been fully realised: by the time the private sector had 12 prisons running, there were only three operators left (see Chapter 6).

13

Competition for prisons

A key decision had already been taken: that the management of competitions and of contracts should be left with HMPS itself, despite the anomaly this created – that the organisation that would run competitions would also be a bidder in them (discussed in Chapter 6). The Major administration developed three very different routes to achieve this strategy, which have been used ever since: • competitions to run new prisons already built by the public sector (‘management only contracts’); • competitions for existing prisons (‘market testing’); • competition to design, build, operate and finance new prisons under the Private Finance Initiative (PFI) (sometimes called Design, Construct, Manage and Finance, or DCMF, prisons, but here called PFI prisons). These three types of procurement differ greatly, in terms of scope for direct competition between the public and private sectors, value, contract length and other respects (see Table 2.1). Table 2.2 lists the contracted prisons. Table 2.1: Three types of prison contracts

Design, construc­ tion ‘Manage­ ment only’

Operation

Separate 3 competition

Contract length

Typical contract value (in 1990s), 800 place In-house prison, £m bid?

Early contracts: 75 (over 5 5 years years) extendable to 7. In later rounds, progressively extended to 10, now 15 years

Usually not

‘Market test’ Already built and in operation

3

As above

As above

3

PFI

3

25 years

750 (over 25 years)

✗

3

Notes: From the early 2000s, education and health services were usually competed separately by other government departments. The new contractual model now emerging is discussed later in this Chapter.

14

Evolution

‘Management only’ contracts

To start with, four new prisons of the government’s preexisting building programme were offered for competition: The Wolds (opened 1992) and Blakenhurst (1993) were followed by Doncaster (1994) and Buckley Hall (end of 1994). For some, HMPS was allowed to mount a public sector bid (‘inhouse bids’).2 These contracts were ‘management only’, not construction. Market testing

One of the aims of competition was to break the power of the POA to obstruct reform in the public sector. This was done most directly through ‘market testing’: inviting the private sector to bid to operate existing prisons, against in-house bids. Manchester was the first such, made easier by the fact that it had been largely out of use after the 1990 riot. This soon ran into difficulties. HMPS discovered mid-competition that the Transfer of Undertakings (Protection of Employment) Regulations 1981 (TUPE) applied, so that a new operator would be forced to take on existing staff on existing pay, terms and conditions, hardly the opportunity the private sector wanted to show what it could do. HMPS was therefore relieved that it proved possible to accept the in-house bid (Lewis, 1997). Lewis also planned to market test open prisons, an operationally easier, if less profitable, target for private operators. This too ran into problems, when the POA claimed this was a matter for collective bargaining and that HMPS had not supplied the necessary information, and the matter was referred to the Central Arbitration Committee (CAC). After a six month delay, the CAC ruled that it was not a matter for collective bargaining but required the information be supplied anyway. There was a re-think, and it was decided that other challenges (the start of the fastest population rise in history) must take priority, and market testing was put on the back burner (Lewis, 1997). Thus began a sorry history of market tests aborted (see Chapter 6).

15

1994

1997

1997

1998

1999

Doncaster

Altcourse

Parc

Lowdham Grange

Ashfield

Buckley Hall

1993

1994

Wolds

Blakenhurst

1992

Name

16

YOI

Train Cat B

Local

Local

Local

Local

Cat C training

Remand

Role at outset (male, unless Opened otherwise stated)

Table 2.2: Contracted prisons, UK

 410

 500

 819

 600

 706

 650

 328

 320

400

920

1379

1133

1145

N/A

N/A

N/A

CNA Op. cap. at March outset 2014

PFI

PPS

PPS

PFI

PFI

25

25

25

25

MO, new build As above

MO, new build As above

MO, new build As above

(continued)

Re-roled for sex offenders 2013

Re-roled to C

Recompeted 2000 retained by PPS, now SERCO. Recompeted 2011, retained by SERCO.

Recompeted and transferred to HMPS. Merged with 2 other prisons to form HMP Hewell, no longer competed

Recompeted 2000, transferred to HMPS. Re-roled to female 2003, back to male Cat C 2005. Recompeted 2011 and retained by HMPS

MO, new build 5 years Re-roled 1993 to local. Recompeted extendable 2001, retained by Group 4, re-roled to Cat C. Contract allowed to expire and transferred to HMPS 2013, merged with HMP Everthorpe to form HMP Humber

Securicor PFI

Group 4

PPS

UKDS

Group 4

Group 4

Operator Term at outset Contract type (at outset) Subsequent history

Competition for prisons

17

2011

2012 2012 2013

Birmingham

Thameside Oakwood Northumberland

Local Cat C Cat C

Local  600 1605 1354

1093

 700

 840  600  800  450  840

CNA at outset  500 UKDS Group 4 PPS UKDS UKDS

900 1605 1348

SERCO G4S Sodexo

MO after MT, transferred from HMPS PFI MO new build MO after MT, transferred from HMPS

PFI

PFI PFI PFI PFI PFI

25 15 15

15

25

25 25 25 25 25

Operator Term at outset Contract type (at outset) Subsequent history PPS PFI 25

807 max Kalyx occupancy 2011–12 1460 G4S

Op. cap. March 2014 654 max occupancy 2011–12 1460 625 1133 527 1008

Notes: CNA (Certified Normal Accommodation) = designed uncrowded capacity. Some prisons in recent years were designed to be capable of higher numbers than their CNA. Op Cap = operational capacity = rated maximum acceptable capacity. Scottish prisons do not have an Op Cap figure, tables gives maximum occupancy as most recently recorded. All operators have changed names since start up

2008

Forest Bank Rye Hill Dovegate Bronzefield Peterborough

Addeiwell

2000 2001 2001 2004 2005

Name Kilmarnock

Local Cat B train Cat B Women Mixed male/female and young offenders Adult male

Role at outset (male, unless Opened otherwise stated) 1999 Mixed roles, male

Table 2.2: Contracted prisons, UK (continued)

Evolution

Competition for prisons

The population surge and the PFI

The difficulties of market testing might have made for very slow progress, but for the coincidence of the population surge that began in 1993, and the invention of private financing, which together opened up much greater opportunities for the private sector. The 1990 riots had been traumatic enough for the Conservative government to bring prison numbers down. But this quickly wore off and a much more rapid rise re-commenced in 1993, fuelled in part by the moral panic over the murder of James Bulger in February 1993, in part by the government’s need to outflank the rising star of the Labour Party, Tony Blair. That rise, sustained under Blair, nearly doubled the prison population (Figure 2.1). There were different drivers of this rise: a more serious mix of offences; sentencers sending a greater proportion of those convicted to prison and for longer; legislative changes affecting sentencing, parole and recall of released prisoners; and Figure 2.1: Total prison population and capacity, and growth of contracted sector, England and Wales, 1990–2015 Population Op Cap

CNA (all system) Contracted sector (occupancy)

100,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 1990

1995

2000

2005

2010

Notes: Data is from different sources and it is not always clear what definitions are used. Generally ‘CNA’ = Certified Normal Capacity = uncrowded capacity in use. ‘Operational Capacity’ = maximum acceptable capacity. Population data is annual average, capacity data is March data. Sources: Prison Statistics, and data supplied by MoJ

18

Evolution

greater use of custody for breach of community sentences (MoJ, 2013a).3 Sentencers responded to Michael Howard’s rhetoric as Home Secretary (‘prison works’), and thus began the fastest and most sustained rise in the prison population in history. (The increase is associated with Howard, but half of it took place under Labour.) At some points, the increase was the equivalent of one new prison every three weeks.4 What is ironic is that the rise started just as the post-war increase in crime stopped and reversed: since the mid-1990s, crime rates have nearly halved and the prison population has nearly doubled. But no politician, Labour or Conservative, was prepared to question the UK’s extravagant use of custody (except in Scotland, where politicians continued to make the case for less use of custody, though that did not do much to bring prison numbers down; Figure 2.2).5 New capacity was therefore needed extremely quickly, the more so since the Treasury disliked the open-ended nature of demand for prison places and was wary of building too much headroom into the system, on the grounds that Home Secretaries would then merely find ways of using it up. The hypothesis that spare capacity ‘causes’ increased incarceration has been proposed, and attacked, in the US (Young and Brown, 1993): in the UK, it felt more like laying the track just in front of the engine. The Treasury could justify postponing building, as population projections are subject to very large uncertainties, because of sensitivity to multiple changes ‘upstream’ within the criminal justice system. Typically, therefore, HMPS was building at the last possible moment, right up against the margins of maximum safe capacity. This would have been quite unfeasible under conventional public procurement: first, because of the leisurely timescale and time over-runs, but also because of the difficulty of finding the upfront capital cost. As it happened, there was an answer to all these problems: private finance. The PFI was announced by Norman Lamont in the 1992 Autumn Statement. Initial take up was poor and it was found necessary to relaunch PFI in 1995 (HM Treasury, 1995). The prison population surge could not – in just this one respect! – have been better timed. Moreover, prisons presented the optimum application of PFI, with both construction and 19

Competition for prisons

all operations with the private sector (in schools and hospitals, the core service remained in the public sector). PFI handily presented a way of achieving the strategy for a prison market much more quickly and easily than through market testing. And because capital and operating costs were wrapped up in payments spread over the lifetime of the contract, the problem of affordability was pushed into the far future. PFI was hugely more attractive for the private sector than the other modes of procurement: they could recruit their own staff on their own terms, and design their own buildings; the contracts were worth up to ten times more than ‘management only’ contracts (because of being longer term and wrapping up construction with operation), and the income stream was very predictable; demand was booming; and there was plenty of opportunity to ‘grow’ the business as ‘sitting tenant’. The only drawbacks (for the private sector) were the high cost of bidding, and difficulty of market entry. Whether PFI actually represented value for money is appraised in Chapter 10. The first PFI prisons were commissioned under the Major government and opened in 1997. As the rise in prisoner numbers gathered pace, eight more PFI prisons followed up to 2005, when the programme paused (Table 2.2). The public sector did not build an entire new prison until Kennet opened in 2007, and even that was a conversion of existing buildings. The next new publicly financed entirely new build prison was Oakwood, which opened in 2012 and marked the abandonment of PFI. The use of PFI for new prisons – a political choice, for HMPS there was no possibility of public finance – had a number of crucial consequences for competition: • It was not possible to mount an in-house bid, because the public sector could not raise private finance and could not transfer risk to itself. Coupled with the rapid rise in numbers, this meant that Lewis’s initial strategy, of 12 contracted sector prisons, mutated into open-ended growth in the number of contracted prisons. • At the same time, market testing became more difficult in a system always stretched to capacity, because it was at 20

Evolution

this period assumed necessary to empty the prison before transition to the private sector. As a result, competition was less a direct contest between public and private sectors and more the development of a separate privately run estate, although existing ‘management only’ contracts came up for re-competition when the contracts ended. • The different method of financing PFI prisons meant that it ceased to be possible to directly compare the cost of public and contracted sectors (see Chapter 10). • The very long term of the PFI contracts and the very large investment in them by operators and the banks behind them meant that both government and operators were tied into the market for the long term. This led to a position of mutual dependence, which had both advantages and disadvantages from the point of view of getting a good service at good value (see Chapter 6). In particular, as will be seen, it made contract termination all but impossible. • Bidding for a PFI prison was a far more costly process than for ‘management only’ contracts, involving the formation of a consortium between operators and builders, and complex finance deals. Bid costs could exceed £1 million. Thus it was more difficult for new operators to enter the market, and in fact none has done so since. In these ways, the use of PFI for all new prisons, at a time of rapid growth, completely changed the dynamics of the market. The first contracted prisons open

New prisons often experienced serious problems during startup: in the public sector, Whitemoor, Brinsford and Bullingdon all had serious problems when they opened around the same time (Wheatley, private communication). Staff and prisoners do not yet know each other, routines are not yet established, systems do not work as well as they did on paper. Such difficulties were more controversial in privately run prisons, simply because they were private. But there were also particular problems to do with staff who were new to prison work, and thus lacking confidence and expertise (discussed in Chapter 8). As will be 21

Competition for prisons

seen in Chapter 8, several contracted prisons had relatively high rates of violence and drug abuse, in part because prisoners had much more time out of their cells, and tight staffing was also an issue. Every failing was seized on with glee by opponents of privately run prisons – Labour and Liberal Democrat MPs, various campaigning groups, the POA and the media. At Buckley Hall, the media campaign was criticised by the Board of Visitors as damaging morale, with the families of staff being harassed (Inspection report, 1993) Researchers at The Wolds likewise found the prison potentially destabilised by the violence of political and media opposition (Bottomley et al, 1996). Some of the problems were real enough: at Doncaster, Lewis was so worried by vandalism, inexperienced and intimidated staff, and a director buckling under pressure that he intervened by drafting in a senior public sector manager (Lewis, 1997). Police were called in seven times in six months, and six default notices were issued by HMPS in the first 12 months (HC Deb 30 June 1995, col. 814W). But performance pulled round and, by 1996, the Chief Inspector rated Doncaster as ‘outstanding’, and ‘levels of service provision were impressive in almost every department’ (Inspection report, 1996). Here, too, the Chief Inspector deplored the ‘grossly misleading’ (and potentially destabilising) campaign against Doncaster, and asked media to actually visit the prison and see for themselves. Much of the public criticism did not square with more considered and informed views. The Chief Inspector commended staff/prisoner relationships at The Wolds (‘admirable….there is genuine respect between them’) and Buckley Hall (‘a thoroughly good report’). The evaluation of The Wolds, when it came, was positive: half the prisoners favoured handing the whole prison system over to the private sector (Bottomley et  al, 1996). The National Audit Office (NAO), too, judged standards at The Wolds to be significantly higher than in the public sector (NAO, 1994a). Nor did critics pay the same attention to public sector prisons in dire trouble: Full Sutton was described by the Chief Inspector in 1992 as filthy and in a state of virtual anarchy; 50 prisoners escaped from Highpoint over three years and a riot by 100 prisoners caused 22

Evolution

£1 million of damage in November 1992. For some reason, these examples were not thought to ‘prove’ the failure of the public sector in the same way. Crisis in the public sector

Meanwhile, the public sector was itself undergoing stark challenges and radical change, following escapes of IRA prisoners from two high security prisons in 1994–95, the very public sacking of its Director General and coruscating reports by Sir John Woodcock and General Sir John Learmont, which laid bare profound weaknesses in management (Home Office, 1994 and 1995). These reports led eventually to fundamental change, one might say the virtual invention in HMPS of modern management, including proper operating standards (see Chapter 12). An unintended consequence was that these standards, and the new culture of strict compliance, were imported into prison contracts, reducing scope for innovation by the private sector. 1997–2000: Labour and the PFI boom In opposition, Jack Straw, like Blair before him, had denounced privately run prisons as ‘morally repugnant’, promising to return them to public sector operation as soon as possible.6 There was an abrupt about-turn on entering office, with a commitment to new PFI prisons as well as renewal of existing contracts (HC Deb 19 June 1997, col. 249W).7 Straw said he had no choice: the need to build as fast as possible ruled out conventionally financed public sector building, and returning prisons to public operation would have raised spending. Later, he shifted his ground slightly, claiming he had been persuaded by the good performance of privately run prisons (HC Deb 12 February 2001, col. 51). It is relevant that there was no love lost between New Labour – or, indeed, the rest of the union movement – and the POA (Straw, 2013). Straw did set in motion two studies intended to examine scope for ending use of the private sector, which throw light on the relative cost of both public and contracted sector prisons. 23

Competition for prisons

The findings were quietly placed in the Library of the House a year later, attracting remarkably little comment (HC Deb 25 June 1998, col. 587W). They are particularly interesting, since options they looked at for doing away with the private sector, rejected by Labour in 1998, have been in part adopted by a right wing Conservative Secretary of State in the 2010s. The first study asked the HMPS to assess whether it could match the performance of the private sector, so enabling return of contractually managed prisons to the public sector on value for money grounds (Home Office, 1998a). (This could only have been done with ‘management only’ contracts – the 25 year PFI contracts were virtually unbreakable, barring serious default by the contractor, and as will be seen in the case of Ashfield, difficult even then.) This detailed study of the structure of the cost gap between private and public sector prisons (which required a surprising degree of openness by contractors), found that the gap was due partly to fewer staff working more hours, partly to lower pay. In the light of this, the study – considered in more detail in Chapter 11 – concluded that contracted prisons could only be returned to the public sector in one of three ways: • by importing existing private sector terms and conditions when privately run prisons were brought back into the public sector (effectively, two prison services with entirely different pay and conditions); • by negotiating terms and conditions for existing HMPS staff similar to those of the private sector (which was clearly not going to happen); or • by imposing similar terms and conditions on new staff joining HMPS (so that achieving change would take a generation). Unsurprisingly, none of these options was thought feasible, on industrial relations and other grounds, nor did the POA, which was consulted, suppose the cost gap was bridgeable without accepting poorer terms and conditions, which it was not prepared to do. Yet as will be seen, two privately managed prisons were in fact brought back into the public sector at the end of the 1990s, on precisely the grounds that the public sector bid was cheaper. 24

Evolution

The second study looked at whether private finance and build could be coupled with public operation (Home Office, 1998b). It concluded – in line with the other study – that any option involving public operation would be more costly than PFI and so left Straw no room to argue with Treasury for a different approach. Other arguments were that such a split would confuse the respective responsibilities of builder and operator, restrict transfer of risk to the contractor, prevent synergy between design and operation, and would be on-balance sheet (there was also a clear steer from the Treasury not to deviate from the straight PFI path). Two years later HMPS asked Mouchel Consulting to carry out a fuller study of such hybrid options, discussed in Chapter 10. Assessment of contracted prisons

Towards the end of the decade, a series of reports began to accumulate comparing public and contracted prisons – on the procurement of the first PFI prisons (NAO, 1997), on the cost and performance of ‘management only’ contracted prisons alongside public sector comparators (Coopers and Lybrand, 1996; Dunmore, 1996; Woodbridge, 1997, 1999; Park, 2000) and on the performance of PFI prisons (NAO, 2003), as well as regular inspection reports. A consensus began to emerge that privately run prisons were definitely cheaper (except for the first PFI, Altcourse), but their performance was more mixed (the exception was the 2003 NAO study, that showed contracted prisons well ahead on quality of service). These findings are considered in Chapters 8 and 11. The public sector wins back two prisons

This conclusion on comparative cost seemed challenged by the decision to return two privately run prisons, Buckley Hall and Blakenhurst, to public sector operation when contracts were re-competed at the end of the 1990s, a decision for which I was responsible. Everyone assumed a political objective: in fact, it was done entirely on cost, as in-house bids appeared cheaper. The private sector did not seem to anticipate a competitive 25

Competition for prisons

public sector response, and were perhaps complacent. I now have doubts about those decisions, see Chapter 6. However, the decision did not stop the private sector from bidding in future, and had the benefit of convincing those resistant to change in public sector that cutting cost and improving performance was worthwhile. Abortive competition for Brixton

Another abortive market test occurred in 2002. In response to the appalling state of Brixton prison, the prisons minister, Paul Boateng, announced the prison would be market tested, though officials warned that the private sector might not be willing to bid (see ‘Four prisons in trouble’). So it proved: there were no private sector bids, the public sector bid was deemed unaffordable, and the competition collapsed (HC Deb 24 July 2002, col. 1447W). The contractors told me (as Finance Director) that this was just about the worst ‘opportunity’ they could imagine: taking over a decayed and overcrowded prison in public disgrace, complete with a notoriously obstructive POA branch, with the contractor having no scope for either capital investment to improve facilities or introducing new staff, and with too short a contract to be able to turn the place round. It was not the last time that ministers, intent on ‘punishing’ the public sector, failed to understand the commercial perspective. The decency agenda

Around this time Martin Narey as Director General of HMPS (and later Chief Executive of the National Offender Management Service, NOMS) launched ‘the decency agenda’, essentially an extension of Woolf: prisoners should be treated with respect and decency. It was deeply influenced by the new approach in the best of the privately run prisons. Having opposed privately run prisons to begin with, Narey describes the moment his views changed, at a contracted prison, watching new prisoners arriving “being called ‘Mr Brown’, and being offered a cup of tea and being treated with a dignity which I knew was beyond the public sector … It wasn’t about efficiency 26

Evolution

… it was just about humanity” (Narey, private communication). Others made similar comments – for all that some of the worst prisons, too, were in the contracted sector. Scotland is different Scotland’s experiment with privately run prisons was much shorter than in England and Wales, and its rejection of the idea seems final and complete. Nonetheless, Scotland ended up with a higher proportion of prisoners in privately run prisons. Scotland in the 1990s had some of the same problems with its estate as England and Wales – too many ageing, dilapidated buildings providing poor conditions in the wrong places, an inefficient public sector resistant to reform and a prison population that was on the rise (though nowhere near as sharply) (see Figure 2.2). The Major government extended power to operate privately run prisons north of the border through the Criminal Justice and Public Order Act 1994. It commissioned the first PFI prison there, Kilmarnock, opening in 1999. But with devolved government, the political dynamics changed. Scotland has a stronger attachment to publicly run services and a stronger union voice than in England and Wales, and opposition to outsourcing, especially PFI, was more vocal. And with no viable governing party to Figure 2.2: Growth of prison population and of contracted sector, Scotland 1995–2012 Total population

Contracted sector population

9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0

1995

2000

2005–06

Sources: Prison Statistics Scotland and SPS

27

2010–11

Competition for prisons

their right, there was perhaps not the same political dynamic as in England and Wales whereby Labour was led to adopt Tory policies, such as outsourcing and PFI. The first (Labour/Liberal Democrat) government in Scotland put forward proposals for three further PFI prisons to help meet the population rise and improve conditions (Scottish Executive, 2002 and PriceWaterhouseCoopers, 2002). These were bitterly resisted not only by the nationalist opposition but also by its own backbenchers. The Scottish Parliament’s Justice Committee tore into the report by PriceWaterhouseCoopers that made the case for PFI – in sharp contrast to the easy ride given the private sector by the Commons Home Affairs Committee in 1996 (Scottish Parliament, 2002). A report by two academics, though flawed in places, challenged the underlying assumptions, undermining the proposal (Taylor and Cooper, 2003). Less than impressive performance at Kilmarnock, accompanied by strongly critical Inspectorate reports, also made the PFI case hard to sustain. The opposition took its toll and progress was slow. Of the planned programme of PFI prisons, only Addiewell had been contracted for by the 2007 election. The new SNP government cancelled the second PFI al Low Moss, replacing it with a public build and operated prison. Interestingly, at no time was market testing of public sector prisons – ‘failing’ or otherwise – mooted north of the border, nor the possibility (as at Oakwood) of public build/private operate. At the time of writing, it seems impossible that competition will ever return to Scottish prisons. Yet the two contracted prisons hold 17% of Scotland’s prisoners, a higher proportion than in England and Wales – in fact, the highest percentage in any country in the world, except Australia (Mason, 2013) (see Figure 2.3). And since they are 25 year PFI contracts, they are unlikely to be terminated much before their end dates, meaning there will still be a privately run prison in Scotland into the third decade of this century. Thus, in considering the impact of competition (in Chapter 12), the Scottish example makes an interesting contrast with England and Wales.

28

Evolution

Figure 2.3: Growth in proportion of prisoners held in contracted prisons, 1992–2014 E and W

Scotland

USA

Australia

50 45 40 35 30 25 20 15 10 5 0

1990

95

2000

2005

2010

Source: NOMS; SPS; Mason, 2013

The 2000s: drift and indecision Changing landscape

The 2000s were a time of uncertainty on competition, for various reasons. First, the population rise slowed slightly after the terrifyingly sharp rise of the 1990s (Figure 2.1). Ministers who had not witnessed the 1990 riots came on the scene, and HMPS became a victim of its own success in managing rapidly rising numbers safely: it became harder to make the case that new prisons were needed for a rising population. Between 1992 and 2005, new privately run prisons opened at the rate of one a year: for the next seven years, only three smaller publicly built and run prisons opened. Second, the political landscape changed. Straw, as Home Secretary for four years, was a powerful figure in Cabinet, very close to Blair, and left for an equally senior office. His three successors served for lesser periods – in one case, barely a year – either resigning or being dismissed. None carried the same weight. And as Blair’s star faded, the ideology of outsourcing was again open to challenge. Third, it was more difficult to enthuse about the private sector, as two contracted 29

Competition for prisons

prisons ran into severe operational problems, at Rye Hill and Ashfield (see ‘Four prisons in trouble’). Not that the public sector was without equally serious problems: institutionalised brutality in Wormwood Scrubs, the ghastly murder of Zahid Mubarek at Feltham YOI in March 2000, and a serious riot at Lincoln Prison in October 2002. That the Commission for Racial Equality’s extremely critical report on racism in prisons in 2003 focused on two prisons in the public sector and one privately run underlined the fact that neither sector could claim superior performance (Commission for Racial Equality, 2003). Carter and policy indecision

In this changing climate, three important reviews on competition policy were carried out by Pat (later Lord) Carter, a businessman whom Straw appointed non-executive of HMPS (Carter, 2001, 2003, 2007). These were the first attempts by government in a decade to review the operation of competition, and to work out how it should develop. (His reviews went much wider than that, having to accommodate other agendas – the Treasury’s wish to limit prison numbers, and merging of prison and probation management.) On competition, he had several recurrent themes. • Competition had been a success: privately run prisons had lower costs and performed well, and competition had driven improvement in the public sector (though as will be seen in Chapter 7, the performance data tells a more chequered story). • A longer term and more ambitious programme of competition in prisons was needed, new entrants should be encouraged, and competition should be extended to probation. • Public sector costs should be brought down by workforce reform, cutting central overheads, and benchmarking and standardising prisons’ performance and costs. • Government should go for much bigger prisons (2,500 or so places), primarily for economies of scale, and ‘new for old’ deals (closing prisons that were old, costly or not fit for purpose, and using the proceeds from selling sites to build bigger modern prisons, more appropriately located). 30

Evolution

• Market testing should not be limited to new or failing prisons, and would work better if the public sector was not allowed to compete. • PFI should continue, but it might be worth also trying a public build, private operate option. • He also made recommendations on the mechanics of contracting: indexation for inflation, specification of prison staffing levels and balance sheet treatment of PFI prisons. • Government should be neutral between public and private operation, and its relationship with providers in both sectors should be based on commissioning and contractual management, not direct line management. The government broadly welcomed each of Carter’s reports (HC Deb 26 February 2002, col. 1255W; HC Deb 6 January 2004, col.  171; HC Deb 5  Dec 2007, col.  827; also Home Office, 2004, 2006a, 2006b). A new body, the National Offender Management Service (NOMS), was set up to bring prisons and probation together. In August 2006, the government published the first long term competition strategy (Home Office, 2006b). A new term was introduced: ‘contestability’, best understood as opening services to internal challenge and, potentially, to external competition (see Chapter 6). Heroic targets were set: 10% of probation work by value to be subcontracted by 2007–08, and one quarter of all adult services operated by NOMS, to a value of £9 billion, to be completed within five years. It seemed competition policy was finally moving up several gears, from short term incrementalism to major strategic commitment. But none of this happened. The grand strategy was gradually forgotten – in fact, there was less competition in prisons for some years after 2006 than before, while competition for probation was hobbled by a well-organised opposition. In retrospect, one can see various reasons for this. A major obstacle was the design of the new organisation, NOMS. Carter failed to take account of key facts, such as that more than half the programmes in prisons were funded by bodies outside NOMS, and that government had no legal power to compete probation. His proposals were not fully thought through. In 31

Competition for prisons

particular, the proposal that NOMS adopt a ‘commissioning’ role in respect of both public and private sector services caused endless difficulty, implying something very different from traditional direct line management in the public sector, and lead to repeated reorganisation in an attempt to make sense of the idea – “a plane that could not fly” is the summation by Phil Wheatley, then head of the public sector service (private communication) – and seriously distracted and exhausted top management for some years. The political reality was that ministers were very much in direct drive of HMPS, one of the higher risk parts of government, making them personally very accountable, as Michael Howard had discovered. They badly needed direct control of, and constant operational advice from, its senior managers – and it was not possible to combine, within a single government department, direct management by ministers and ‘commissioning’ of the same service. Nor did it make sense to divorce operational management from policy (as, again, Howard’s experience had showed). The issue was not resolved until another reorganisation in 2007 provided the opportunity to fully integrate not only public and contracted sector prisons, but the probation service as well. A second factor was that the political climate had changed. Successive Home and Justice Secretaries just did not have the stomach for revving up competition on the scale Carter envisaged, at a time when some contracted prisons were foundering, and there were conflicting currents within government and the Labour Party about contracting out, and PFI in particular. Finally, Carter’s proposal for 2,500 place jails, so unfortunately named (though not by Carter), ‘titans’ (shades of RMS Titanic), were seen as too cost driven, and attacked by those more concerned with the treatment of prisoners and their families.8 Yet much of Carter’s agenda was eventually adopted by the Coalition government, in the next decade, driven by much fiercer fiscal pressures – a much bigger competition programme, much bigger new prisons, but public built/private operated, drastic cost reduction in the public sector, a much leaner HQ – only for competition to fizzle out once more in the mid-2010s.

32

Evolution

Performance testing

It was unfortunate that the creation of NOMS coincided with, and ended up defeating, a promising idea for how ‘contestability’ might be used to drive improvement through the whole system, rather than just competing prison by prison. Phil Wheatley, as head of the public sector service during this time, wanted to ‘performance test’ the entire public sector within seven years. Prisons would be identified as underperforming or over costly through benchmarking, offered a time to improve and help to do so, but if they could not, they would be contracted out – without an in-house bid. This approach, which might have more quickly improved public sector performance while also offering a steady stream of opportunities to the private sector, was subsumed by the (largely abortive) NOMS competition strategy. Stop/start

Instead of a long term competition programme, there were a series of short term misfires. Charles Clarke as Home Secretary announced in March 2005 a competition for competing three prisons in Kent as a group (a step forward, in that they were not ‘failing’ prisons, so more attractive to bidders, and would make possible economies of scale), only to cancel the competition in May – to the incredulity of the Director General of NOMS, Martin Narey, who did not know Clarke was planning this volte face until the meeting at which it was announced, and who views this as typifying the lack of any kind of strategic view of competition by ministers (Narey, private communication). The competition had been used as leverage to get the POA to agree to a multiyear pay deal and a fundamental review of pay and grading (but which then made little progress). Further huge building programmes were announced: an astonishing total of 20,000 new places announced in 2006–07 (HL Deb 19  June 2007, col.  97 and HC Deb 5  December 2007, col. 827); but the plans mostly failed to materialise. Straw announced that he would implement Carter’s proposals with three 2,500 place ‘titan’ prisons – although it soon transpired he 33

Competition for prisons

had neither money nor sites for them.9 Then he replaced these with plans for five 1,500 place prisons, the first two at Runwell in Essex and Beam Park West in Barking and Dagenham (HC Deb 5 December 2007, col. 828 and 27 April 2009, col. 569). A framework agreement to build them through PFI was launched but both Runwell and Beam Park West were abandoned (HC Deb 26 October 2009, col. 86W; HC Deb 24 February 2010, col.42310). Instead, just one such prison, but public build, was started at Oakwood, opening in October 2011. Competition was started for new PFI prisons at Maghull, near Liverpool, and South East London: the former was cancelled by the new government in 2010. Market testing was launched for two ‘failing’ public sector prisons, at Wellingborough and Birmingham, but Wellingborough was aborted, because it was judged to require major capital investment to ensure a viable future (HC Deb 31 March 2011, col. 526). Much of the build that did go ahead was in the public sector, within existing prisons, and in three new public built, public operated prisons, the first to open since the early 1990s: two hasty conversions of existing public builds (Bure and Kennet) and what was effectively an extension of Belmarsh (Isis). Right at the end of the period, the Labour government started an experiment in ‘payment by results’ at Peterborough prison, with payment to the contractor partly dependent on success in reducing re-offending by ex-prisoners (see Chapter 14). 2010–15: Coalition government: the end of competition? A new Conservative-led government ought to have greatly increased the prospects for competition. An early announcement by Kenneth Clarke, now Justice Secretary (having launched competition in prisons a quarter of a century previously), seemed to promise just that. His competition strategy, published in July 2011, stated that all services would be open to competition, not just new or failing prisons (MoJ, 2011). Objectives were set – with much the same generic headings as in the past – ‘improved delivery’, ‘innovation’ and ‘value for money’.11 The private and third sectors were promised the opportunity to bid for all new rehabilitative services. In the first batch, nine existing 34

Evolution

prisons were opened to competition. Once again, it seemed competition was decisively moving up a gear. But after that promising start, it all collapsed. Under Clarke’s successor, Chris Grayling, the prisons market test progressively fell apart: PFI was abandoned; market testing was ruled out for the rest of the Parliament; and, the final blow, the private sector was not even permitted to compete for the new 2,500 place prison at Wrexham. Two developments explain this outcome: • the fiscal crisis, which required much faster spending cuts than market testing could deliver; and • the disgracing of SERCO and G4S, leaving the prison market effectively with a single supplier. The fiscal crisis drives a new approach

For all the rhetoric about rehabilitation, it soon became clear that the main task for the 2010–15 parliament, and indeed for the foreseeable future, was managing massive spending reductions (‘the government’s number one priority is to tackle the budget deficit’: NOMS Business Plan, 2011–12). NOMS expenditure dropped by a quarter over the period 2010–11 to 2014–15 (NOMS Business Plan, 2014–15). One way of making cuts would have been to ask why we need so much imprisonment. Clarke was the last Conservative of the old liberal tradition capable of such thoughts, and indeed committed to get numbers down as recently as 2010 – but by a mere 3,000, not enough to impact much on spending. Another way would have been to remove the 11,000 foreign nationals in prison here, remarkably constituting 13% of the total population, and costing £400 million a year to imprison and detain (NAO, 2014a). However, the Home Office’s already slow rate of removal of such prisoners declined still further, despite consuming extra resources, and numbers in prison had risen, not fallen. The cuts had therefore to be made without moderating demand. The result has been cuts in prison expenditure which only few years ago would have been laughed off as either idle fantasy, 35

Competition for prisons

or dangerously irresponsible. What was been done in just four years is extraordinary. Grayling quickly realised that traditional market testing, while it might deliver the largest savings long term, was too slow a process to enable him to meet the huge and rapid spending reductions required of him. He saw that those cuts could be achieved instead by reducing costs in the public sector, which could be done through direct management action rather than lengthy (and costly) competitions. Public sector costs were cut primarily in three ways: 1. ‘rationalisation’ of the prison estate; 2. the development and rapid application of a wholly new cost and operational model for public prisons 3. in the longer term, by cutting pay and pensions. Smaller amounts were saved through a cut of 37% in headquarters (but this may be in part simply represent transfer of common services cost from NOMS to the central department), and cuts in contracted services of £60  million. It is not clear where cuts in contracted services fell, but data from Parliamentary Questions (PQs) show that substantial cuts were made to the funding of contracted prisons around this time: for example, £23 million at Altcourse alone, something like 5% of annual costs over the remaining contract term (HC Deb 2 September 2013, col. 206W). Nothing is published about the detail of these cuts in the private sector but it is consistent with staff:prisoner ratios rising at some contracted prisons (see Chapter 11). The protection offered by contracts was clearly limited. Estate rationalisation

One of the political ironies of prisons is that the biggest building programme in history took place mainly under a Labour government, while closures only happen under the Conservatives. But the two minor closures in the early 1990s pale beside the scale of Grayling’s vision. Eighteen prisons with 6,000 places have been closed or re-roled as Immigration Removal Centres (see Chapter  3), and 5,850 new places 36

Evolution

provided in a mix of new prisons (Oakwood, Wrexham) and houseblocks within existing prisons (NAO, 2013a). These closures were driven by financial pressure (annual operating costs or long term maintenance costs), although other factors were considered in selecting those to close, such as the strategic importance of specialist functions in particular prisons, and fit to geographic need. Performance was not a factor, and some well performing prisons have been closed (a criticism by the Public Accounts Committee, 2014a). PFI prisons were spared closure, even though some appeared high cost and not very well performing, because the contracts were unfeasibly costly to end (NAO, 2013a). (This point is relevant to the appraisal of PFI in Chapter 10.) Carter and others had thought PFI could be used to ‘self-fund’ just such large scale estate rationalisation. But one consequence of the fiscal crisis was that the costs of borrowing in the private sector soared, while the cost of government borrowing plummeted, making PFI unviable. Moreover the public sector had shown its ability to build fast and to budget at Bure, Kennet and Isis prisons. So PFI is now mainly a Labour, not Conservative, inheritance. The net change in capacity through this programme was small, and in fact the proportion of prisoners held in overcrowded conditions actually fell to 22.9% in 2013–14, the lowest rate since 2001–02 (HC Deb 21 July 2014, col. 852W). However, that means that ‘only’ some 19,000 prisoners are held in cells that were not designed to hold two prisoners. And the headroom below maximum safe capacity (‘useable operational capacity’) remains very tight, at about 2,000. And in a significant turning point in British penal policy, government has now ‘institutionalised’ two to a cell accommodation. Wrexham is planned to require most prisoners (some 70%) to share two to a cell (NAO, 2013a). NOMS does not count that as ‘overcrowding’, since it is designed for that use, and it is true that, as the government maintains, some prisoners prefer it. But building new prisons with so many cells requiring sharing is entirely novel, and is quite clearly driven by cost, not prisoner preference (Public Accounts Committee, 2014a; Oral Evidence, Q, 112 (Oral Hearing 10 February 2014).

37

Competition for prisons

The net savings claimed for this programme are unclear. NOMS quotes £170 million a year (NAO, 2013a) but that is meaningless as it is the gross figure and does not reflect costs of closure or costs of constructing new accommodation or new operating costs, and describes as ‘savings’ costs which are merely being transferred from one government department to another, as two former prisons became Immigration Removal Centres paid for by the Home Office. It appears from published figures that true net savings are likely to be in the region of £80 million a year net in annual operating costs (cost of closed prisons minus cost of new prisons) and about £475–500 million net capital cost (cost of constructing new places less receipts from land sales). Transitional costs of closure will be in the region of £75 million. It may be six or seven years therefore before the programme reaches breakeven. Of course, in the process some poor quality accommodation is being exchanged for better, with a far longer life, and possibly more appropriately located in relation to prisoners’ homes, so cost is by no means the whole picture. The new public sector operating model

Much bigger savings came from a wholly new operating model for the public sector. NOMS took the model developed by MITIE, a company whose main business is facilities management (FM) (see Chapter 6), when bidding for the last round of market testing in partnership with HMPS. Under this model, HMPS continues to provide the core custodial function, but with far tighter staff:prisoner ratios. There is also a tighter specification of exactly what services should be provided where and for whom, how, and at what cost. This Cost and Benchmarking Programme, completed across the public prison system by April 2015, has driven driving down staffing levels across the prison system much further than previously thought possible – or safe. The implications are discussed in Chapter 11, including the impact on performance and safety. Also as part of the new model, ‘non-core’ services are to be contracted out via regional or national contracts that apply to all prisons: FM and works services and resettlement programmes (see Chapter  14) to start with, with other services likely to 38

Evolution

follow. The savings from contracting out FM services and works in all public sector prisons will start coming on stream in 2015; savings from the probation contracts will be ploughed back into reducing re-offending. The difference between previous and new operating models is summarised in Figure 2.4. In the past, prisons whether publicly or privately operated, were vertically integrated: the governor ran most of it directly. The new Figure 2.4: The new contractual model Vertically integrated model: public sector,1990s Custody Healthcare Education Offender programmes Back office FM, works Other

Small local contracts, charities running visits and so on

Mixed model: public sector, 2000s Custody Offender programmes Back office FM, works Other Small local contracts

Education contractor

DfES

Healthcare contractor

NHS PCT

The emerging new contractual model, 2015 Custody

Small local contracts

Healthcare contractor

NHS PCT

Education contractor

DfES

FM and works contractor Resettlement contractor Industries contractor Back office shared services

39

Contracts via NOMS centre/MoJ

Competition for prisons

model is a mix of vertical and horizontal integration; much of what the prison governor is responsible for is no longer delivered directly but through contracts operating across all prisons, contracts which are managed remotely. The new model raises big questions about prison management, accountability and control, considered in the final chapter. On top of all that, HMPS at last started to get to grips with its outdated pay and grading structures, as the Prison Service Pay Review Body had been urging in vain for a decade (see Chapter 11). The ‘Fair and sustainable’ programme introduced much shorter pay scales with a lower starting point, and leaner management structures. Voluntary transition of existing staff to the new arrangements has predictably been extremely slow (of those who have the option, only about 8% have elected to switch to the new terms12). The full benefit will therefore take years, perhaps decades, to materialise. The same is true of reforms to the Civil Service Pension Scheme, introduced following the Hutton inquiry (see Chapter 9). These are astonishing achievements, showing quite remarkable management drive, imagination and competence – astonishing not least for the speed of implementation, not typically a public sector strength, particular given that these multiple changes in prisons and HQ have been alongside the wholesale remaking of the probation service, running at even faster pace. Many of these ideas have been proposed and talked about for decades – ‘titan’ prisons, ‘new for old’ redevelopment of the estate, remaking pay and workforce structures. Now they are happening ‘at pace’ (a favourite Grayling term). Astonishing achievements, certainly. Whether they are the right thing to do is another matter. Many informed commentators, including the Chief Inspector of Prisons and Prison Ombudsman, and Lord Woolf himself, see evidence that regimes are deteriorating, and prisoners and staff safety are being put at risk. These issues are considered further in Chapter 11. The disgracing of SERCO and G4S

Another factor behind Grayling’s change of approach to competition was the fall of SERCO and G4S, which has been 40

Evolution

of epic proportions. The scandal that erupted in mid-2013 had nothing to do with their prison contracts. Yet this has had drastic, possibly fatal, consequences for competition in prisons. The story, much of which remains shrouded in secrecy, is set out in Chapter 5. The SERCO/G4S saga exposed government’s folly in allowing the market to consolidate around just three prison operators. This meant that until SERCO and G4S were again deemed fit to be awarded prison contracts, there was only one supplier, Sodexo. But Sodexo has been busy transitioning the huge new Northumberland from the public sector, and also now has its hands full with massive contracts for probation work, with all the risks that will entail (see Chapter 14). Thus the market was, at least for time being, effectively disabled. Consequences for competition

As a result of the decision to focus on cutting public sector costs directly, and the G4S/SERCO scandal, Grayling gradually abandoned the market testing of nine prisons inherited from his predecessor. He first took four prisons out of the competition: Coldingley, Durham and Onley, on the grounds that the new public sector cost model offered faster (though not smaller) savings than contracting out, while The Wolds, privately operated for 20 years, was returned to the public sector. The Wolds move was ostensibly because grouping with nearby Lindholme Prison offered synergistic economies,13 though some linked the decision with G4S’s failure to honour its contract for guarding the Olympics – and it may be that the billing scandal, which made any contract award to SERCO or G4S politically impossible, had already become known within the MoJ. SERCO had been the favoured bidder for a group of prisons: Hatfield, Moorland, and Lindholme. But with the public eruption of the scandal, its bid was at first put on hold, then later dismissed, with the public sector continuing to operate the prisons. So in the end, only one prison, Northumberland (created by merging two of the original nine prisons market tested, Acklington and Castington), was taken to the end of the competition, going to Sodexo, the only operator not touched 41

Competition for prisons

by the billing scandal. Although Sodexo prisons have certainly had their share of troubles, they have not had quite such serious difficulties during start-up as the other two operators. It may be that the best private operator in the market is the last one left standing. But is there still a market? For the events of the past few years have profound implications for future competition. PFI has been abandoned as a way of building new prisons; market testing has been set aside; and the last route for competition, contracts to run new publicly built prisons, has been closed off, with the decision not to compete the operating contract for the new mega-prison at Wrexham, but give it to the public sector. The NOMS view is that there is so little difference between private and public sector costs that competition is now pretty much an irrelevancy, at most a theoretical sanction against some future failure by the public sector. Thatcher’s last and boldest brainchild may have been finally slain by, of all people, a Tory Secretary of State. Chapter 16 looks at whether competition still has a future, and asks three questions: 1. Is government right to think that there is now no significant difference between the two sectors? 2. What are the implications, and risks, of the new public sector operating model? 3. Is competition dead and if so, is that the right outcome? Notes 1

The Times, 31 August 1993.

There is some confusion about this: the Competition Commission recorded ‘in-house’ bids at Buckley Hall and Doncaster (Competition Commission, 2002), but both Lewis and Wheatley are clear there was no in-house bid for Doncaster, Lewis says because G4, disappointed by slow progress in opening up the market, opposed it (personal communications). 2

A minor masterpiece of the art of visual presentation of complex quantitative information.

3

4

Richard Tilt quoted in the Independent, 11 September 1996. 42

Evolution

That increased imprisonment did not cause the crime drop is clear from modelling and international comparisons.

5

6

Guardian, 8 March 1995.

It was perhaps slightly stretching a point to say Blakenhurst was ‘performing well … in comparison with comparable prisons in the public sector’, given the analysis in the Home Office reports, see Chapter 8. 7

In fact, Carter explained that these prisons would operate as a series of smaller, specialised sub units and that if well located might make it possible to hold prisoners closer to home. But to critics they threatened to be vast impersonal jails.

8

9

Guardian, 17 December 2007.

10

Also Essex Chronicle, 22 July 2010.

Although the mantra seemed to come a little unstuck: ‘Competition can provide commissioners with the means to secure new services, improve existing service delivery, encourage innovation and drive value for money. In addition, competition in offender services has been shown to be effective at encouraging the management and workforces of existing and future providers to improve outcomes, drive efficiency and deliver more innovative models of service delivery’. That ‘in addition’, and the duplicating text that follows, suggests a cut and paste job gone wrong.

11

12

Freedom of Information application.

Oral evidence to Public Accounts Committee, Q.178 (House of Commons, 10 February 2014). 13

43

3

Related markets: immigration – two sectors, no competition A strange silence As seen in Chapter 1, the Home Office was using contractors to keep immigration detainees in custody for almost a quarter of a century before the first contracted prison opened. Yet until very recently, there had been hardly a single serious study of these places of detention. That silence is all the more remarkable when one considers that immigration detainees are far more vulnerable than prisoners, perhaps knowing no one in the UK and not speaking English; that unlike prisons, the majority of detainees are in the custody of private contractors; and that little of the apparatus of inspection, control and accountability that always applied to prisons was in place for immigration detention until well after the detention estate had been created. When Securicor started its contract at Heathrow in 1970, there were no rules in place, and some doubt whether Securicor staff even had any legal power of detention; it appears that until the passage of the Immigration and Asylum Act 1999, there was no statutory power for the Chief Inspector to inspect immigration detention centres; while visiting committees, the equivalent of Prison Board of Visitors, appear to have been introduced only in 2001 (via the Detention Centre Rules 2001). Why this lack of interest?1 In part because of professional demarcation: criminologists were not – until very recently – interested in immigration detention centres, because they were 45

Competition for prisons

not part of the criminal justice system. Of those who were interested in immigration control, some deplored the very notion of detention: for them there was no such thing as a ‘good’ detention centre. Others who supported control were mainly concerned about the low rate of removal. Very recently there has been a spate of interest in the subject, most notably Mary Bosworth’s Inside immigration detention (2014), which applied to immigration detention some of the same approaches pioneered by the Cambridge criminologists in prisons, described in Chapter 8. Development of the immigration detention estate Another reason for the historic lack of interest in the subject may be that until comparatively recently, there was not much immigration detention capacity to study. Until 1993, the only designated immigration detention capacity, apart from the very small short term holding units at some ports and airports, was the Harmondsworth unit, holding about 60 detainees. In 1993 a new centre opened at Campfsield House, near Oxford (operated then by GEO, now by MITIE). Others detained under immigration control powers were held in police or prison cells, the latter sometimes on designated wings of prisons, as at Haslar or Rochester prisons, sometimes just anywhere in the prison system. All that changed with the sudden rise in numbers seeking asylum at the end of the 1990s, with applications quadrupling in just three years (Home Office, 2005). In charge of immigration control at Dover, Alan Kittle recalls the number of illegal entrants there rising from 900 a year in 1996 to 900 a month in 1998 (Kittle, private communication). In 2001 the Home Secretary, David Blunkett, announced an ambitious programme to relieve pressure on prisons and ensure adequate capacity to deal with the rising numbers by increasing the detention estate from 1,400 to 4,000 places (Home Office, 2002). Detention centres became Immigration Removal Centres (IRCs) with the focus on speedy removal rather than prolonged detention. Three prisons (Haslar, Dover and Lindholme) were designated as IRCs, now operated by HMPS but under IRC 46

Related markets: immigration

Rules. Successively, the following contracted IRCs were opened: • 2001: new build on the Harmondsworth site (now operated by MITIE) • 2001: converted hunting lodge at Dungavel, acquired from Scottish Prison Service (now operated by GEO) • 2002: new build, Yarl’s Wood (now operated by SERCO) • 2004: new build, Colnbrook (now operated by MITIE) • 2009: new build, Brook House (places now operated by G4S) In the late 2000s, the Home Office wanted to build further capacity but the 2008 fiscal crisis ruled out capital investment. For the same reason, prison estate rationalisation meant that for the first time there were prisons going spare. The Home Office opened negotiations to acquire some of these. However, some were rejected as being in the wrong place or poor state (Shrewsbury, Reading), while others NOMS wanted to retain for its own possible future use as a rebuilt prison (Feltham) (Alan Kittle, then in charge of immigration detention, private communication). The Home Office had to make do with The Verne and Morton Hall, neither very suitable for immigration purposes. Morton Hall was transferred to use as an IRC in 2011 and The Verne in 2014. A funding transfer was agreed but there have been subsequent disagreements between departments about the adequacy of the transfer, with NOMS claiming that it was short changed on running costs by up to 50% (Kittle). A perfect market? One might think this was a perfect market for competition between sectors, much more so than prisons. The public sector was not dominant – and was not also the customer; there were already well established commercial operators; competition was not complicated by the use of PFI, which rules out public sector participation (see Chapter 10). But there has been no such competition. First, because HMPS had just drifted into holding immigration detainees in prison as a matter of convenience (both were part 47

Competition for prisons

of the Home Office until 2007), and was not paid for the work by the then Immigration and Nationality Department (IND, here used as short hand, though frequently rebranded and restructured, as successive Home Secretaries tried to improve its performance). This remained the case after the formal designated of some prisons as IRCs. IND did pay HMPS for certain additional services, such as translation services or longer visiting hours – which cost around £1.5 million per site per year (Kittle, private communication). But the basic service was provided without charge. When the possibility of moving to a paid service was mooted in the 2000s, this could only have been achieved by HMPS transferring the funding to IND so that it could pay HMPS for the service it was already receiving. HMPS was very unkeen, fearing that it would face all the uncertainties of supplying a service with fixed overheads for payment which might be changed or withdrawn, and it would gain nothing from the deal (Phil Wheatley, private communication). And given population pressures, HMPS might one day want those sites to build prisons on for its own use. More fundamentally, HMPS did not want to be in the immigration detention business – and did not think highly of IND’s competence as a customer (Wheatley, also Brodie Clark, head of immigration detention for most of the 1990s – private communications). HMPS believed that it understood how to design and build custodial facilities and run them safely – and that IND did not. IND was not an “intelligent customer” and commissioned several quick and cheap builds which proved disastrously vulnerable to riot and fire, and had to be substantially rebuilt within a few years of opening. IND’s risk assessment was “extremely poor” (Kittle). ‘The “cheap and nasty” (Clark) construction at Yard’s Wood proved a false economy when it was burned down not long after opening. Harmondsworth was devastated by riot – detainees captured and locked in their cells could easily break out again as water from fire sprinklers dissolved the walls which turned to papier mâché (Kittle). Some who should have been detained had to be released while rebuilding went on (Kittle). Oakington had lacked basic security and huge numbers of detainees absconded (Clark). Only with

48

Related markets: immigration

Colnbrook did the Home Office start putting up buildings that were at all fit for purpose. Moreover, HMPS liked to keep prisoners positively occupied, in part for humanity, in part to aid control. IND did not think this necessary since detainees were supposedly in transit out of the UK, and this enforced idleness combined with relaxed security predictably led to control problems (Wheatley, private communication). HMPS staff were also thrown by the seeming lack of purpose in immigration detention: Bosworth records staff at Morton Hall, turned from a prison into an IRC, who ‘missed working with a custodial population whom they felt they had understood and could help’ (Bosworth, 2014). Likewise, HMPS had no experience of some of the problems of immigration detention, such as children imprisoned with parents. Thus, HMPS supplied unenthusiastically a rather limited service, mostly free of charge, at sites for which it otherwise had little use either because of location or poor condition, or did not match HMPS’s current needs (“they were happy to let us have their crummy old places”, Clark, private communication). HMPS did not compete to build or run new IRCs, and empathically did not want to. It wanted to concentrate on its core job. Consequently, the commercial operators had the market to themselves. Around 2010, the immigration detention authorities decided that it wished to market test the HMPS IRCs. However, it was at just this point that the last market test of prisons collapsed so ignominiously (see Chapter 2), so the idea was abandoned – for the time being. It is conceivable that the new commerciallyminded NOMS may wish to bid to run IRCs, competing against the private sector.2 Comparing sectors Can one nevertheless compare the performance of public and private sector IRCs? Unfortunately the obsessive secrecy of the immigration service, which makes HMPS look the very model of openness, defeats this. The Home Office does not publish the costs of individual IRCs, something it did for many years for individual prisons, publicly or privately operated, and which 49

Competition for prisons

the MoJ continues to do. (For much of the period, HMPS itself did not know the true full cost of its IRCs, that is, with full allocation of overheads and notional costs.) The Home Office has refused even to disclose the capital cost of building IRCs, labelling such data as commercially confidential (HC Deb 4 June 1996, col. 330W)3 Most bizarre of all, the Home Office introduced a consolidated code of operating standards for IRCs in 2009, specifically claiming this ‘public document … makes transparent the way we expect detainees to be treated and how our centres operate generally’ (Home Office, 2009). But not only does the Home Office not publish any data on compliance with these standards, it also refuses disclosure under the Freedom of Information Act on the grounds that it is commercially confidential (even for those IRCs operated by the public sector). Some ‘transparency’!4 Conclusion There has not been, and looks unlikely ever to be, real competition between the public and private sectors for detention custody, first because HMPS supplied the service largely free of charge, and second because it had no wish to compete. Because of the secrecy of the immigration authorities, it is impossible to compare performance or cost between the two sectors. Notes 1

A question asked by Bacon, 2005.

NOMS has ambitions to bid to help run prisons for repressive regimes in the Middle East, Guardian, 25 January 2015.

2

It appears they were also unsure whether these projects were PFI or not. They were not. 3

While this book was in press, the Home Office’s refusal was partially overruled by the Information Commissioner (Decision Notice FS50533359, 8 April 2015).

4

50

4

Youth custody The philosophy, organisation and development of custody of juveniles (those aged 17 and under) has been so different from adult prisons that it requires a separate account. This chapter summarises the development of private provision and changes over the period, and assesses the extent of competition between public and private sectors. Background At the start of the 1990s, custody for juveniles overlapped with the adult prison system, but differed from it in many ways. Instead of a highly centralised system run by the Home Office, it was spread between two government departments, and local authorities who were both providers and customers; its purposes were not solely penal, but primarily welfare and protection; and numbers in custody had not risen in the preceding decade, but fallen precipitously. There were at that time three types of secure accommodation for juveniles: 1. Local authority secure children’s homes (SCHs): very small (typically around a dozen children), very intensively staffed and very costly, run primarily by local authorities. SCHs looked after ‘welfare cases’ – juveniles not convicted of an offence, who were in local authority care for their own protection and welfare, or to protect others. 2. YOIs, run by HMPS: these were much larger (generally 300–500) and with much lower staffing and thus much 51

Competition for prisons

cheaper, but their regimes were correspondingly much more limited. YOIs also housed older prisoners, and there was much concern about juveniles mixing with this older group. 3. Two Youth Treatment Centres (YTS) Units: for the most dangerous and disordered 10–17 year olds, at Glenthorne in Birmingham and St Charles in Essex, run by the Department of Health. These were both closed by 2002. The complicated legislative framework that had accreted over time provided for different routes by which different types of juvenile offender reached these institutions: • Remands: the courts could not send juveniles to SCHs directly but could impose a supervision order with condition of secure accommodation, which it was up to the local authority concerned to implement; and over 15–17 year olds could be remanded to a YOI. • 10–14  year olds sentenced to a supervision order with a residence requirement which required the local authority to place the young person in local authority accommodation (where necessary, secure accommodation) for a specified period of up to six months. • Convicted 15–17  year olds sentenced to between 2 and 12 months in a YOI. • 10–17 year olds convicted of more serious offences sentenced to custody which might be in SCHs, YOIs, a YTS unit or a special hospital, the scope of the power depending on the age of the offender and the duration of the sentence depending on the type of offence. 1993–97 Conservative government and Secure Training Centres In March 1993 the Home Secretary, Kenneth Clarke, announced that there would be a new form of custody, Secure Training Centres (STCs), for a small group of persistent juvenile offenders for whom supervision in the community did not work. A new sentence of up to two years would be available to send them to 52

Youth custody

STCs, which might be provided by the public, private or third sectors (HC Deb 2 March 1993, col. 139). Opposition parties, and penal policy and children’s groups, opposed the idea, on various grounds: the emphasis should be on community services not custody; there was a long history of new forms of custody with poor records of reducing reoffending; where custody was warranted, the existing secure provision by local authorities could be suitably developed; while grouping juveniles in a few STCs would distance juveniles from home and expose them to more serious offenders. The government committed to five STCs, each with about 40 places. Although initially it was said that the public or third sectors might run them, it quickly became clear that they would all be built and run by the private sector under PFI. Enabling legislation, the Criminal Justice and Public Order Act 1994, was pushed through, against Lords opposition. Procurement commenced in January 1994 but progress was slow and only one contract had been signed, for Medway STC (opening in April 1998) before the change of government in 1997. 1997 onwards: Labour, expansion of the private sector and creation of the Youth Justice Board As with privately run adult prisons, Labour did an immediate turnabout on gaining office, committing to the full original programme of five STCs, on the grounds that they were contractually bound to Medway and it would have been difficult to have only one STC to which courts could send juveniles (HC Deb 3 July 1997, col. 238W). Three more opened over the next seven years: Rainsbrook and Hassockfield in 1999, and Oakhill in 2004. The fifth was never built. With the opening of Parc (1997) and Ashfield (1999), the private sector began to operate two YOIs, the rest remaining in the public sector. Importantly, contracts for these PFI prisons remained with HMPS (thus creating a complicated set of relationships that was a contributor to problems at Ashfield, see ‘Four prisons in trouble’). The government carried out a fundamental review of policy on juvenile crime, ‘No more excuses: a new approach to tackling youth crime in England and Wales’ (Home Office, 53

Competition for prisons

1997), leading to the creation of the Youth Justice Board (YJB), and a new emphasis on prevention through early intervention, community supervision, faster justice and new investment in positive custodial regimes. The YJB became the budget holder and customer for all forms of custody, holding contracts with local authorities and Service Level Agreements (SLAs) with HMPS for YOIs (SLAs are an administrative arrangement, and are not legally binding: government cannot contract with itself). Sentencing powers were rationalised with the introduction of the Detention and Training Order under the Crime and Disorder Act 1998. The somewhat lopsided structure of the secure estate is shown in Figure 4.1. The YJB had a strategy for using its purchasing power to radically re-model the whole secure estate. Its aims were to: ensure juveniles were not held with young adults in YOIs; progressively take younger juveniles out of the prison system; create more specialised units within the YOI estate; rebalance the estate to match need and provision geographically; Figure 4.1: Youth custody estate, numbers and cost, 2005 Number (left axis)

Per place (£k) (right axis) 200

2,500

180 160

2,000

140 120

1,500

100 1,000

80 60

500

40 20

0

0 YOI YOISecure Secure Secure Secure childrens childrens training training numbers cost/head centre centrehome home numbers cost/head numbers cost/head

Sources: PQ 25 January 2005, col. 294W; YJB statistics

54

Youth custody

develop more positive regimes; and ensure more consistency in application and monitoring of standards and of inspection across the estate. Private sector performance problems

The YJB was wary of both YOIs – because of their impoverished regimes, and links to the adult prison system – and SCHs, because of their extremely high cost and variable standards (YJB, annual report, 2000–01; also Hobbs and Hook Consulting, 2001). Local authorities, too, had concerns about SCHs – cost, availability, lack of consistent information about standards and outcomes, issues around mixing welfare and offender cases (Jane Held Consulting, 2006). But the new privately run STCs, like privately run prisons, proved to have serious problems of their own. Medway suffered repeated disturbances, and there were concerns over high staff turnover and high use of restraints. Formal evaluation of Medway was that care was adequate or good but results, in terms of reducing re-offending, were ‘very disappointing’ (Hagell et al, 2000). The YJB levied substantial penalties of £911,874 on Medway, £155,152 on Rainsbrook and £74,572 on Hassockfield in the first few years (HC Deb 11 April 2003, col. 452W). But as with new prisons, performance improved after the first difficult years. The YJB welcomed ‘encouraging signs … of progress’ from a positive Social Services Inspectorate report on Rainsbrook STC in 2002 and asserted that STCs ‘have proved able to offer high standards of provision’ (YJB, annual report, 2000–01). The last of the STCs, Oakhill, also experienced severe problems of safety and control, and numbers were reduced in 2007 to help a recovery plan. After inspection in 2007, the Chief Inspector of Prisons denounced the ‘staggeringly high level of use of force’ (on 757 occasions in nine months) and suggesting temporary closure was needed (inspection report, 2008). In fact, the YJB contemplated permanent closure, but ministers were dismayed that this would be a body blow to their policy of contracting out (Ellie Roy, then Chief Executive of the YJB, private communication). Performance improved, and 55

Competition for prisons

in 2009 Ofsted rated Oakhill as ‘outstanding’ (inspection report, 2010). The Ashfield privately operated YOI also ran into severe difficulties, and was characterised by Martin Narey, head of HMPS, as the worst jail in the country ‘by some measure’ (see ‘Four prisons in trouble’). The YJB withdrew juveniles from the place and HMPS took the unprecedented step of inserting its own management team. Performance eventually improved, but it took some years to get there. Managing rising, then falling, demand The YJB’s management and development of the secure estate under the Labour government went through two different phases, with first rising then falling demand for places, thus calling for different strategies (Figure 4.2). From the outset, the YJB wanted a ‘considerably smaller’ number in custody (YJB, annual report, 2003–04) and the continued high numbers stymied its plan for better custodial regimes (YJB, annual report, 2004–05). Its 2005 estate strategy committed to a 10% reduction in numbers by 2008 (YJB, 2005). Alongside this, it aimed to complete separation of girls from adults, develop specialised secure units within YOIs for particular needs, and develop open or semi secure options. But Figure 4.2: Numbers in youth custody, 2003–14 3,000

STC YOI SCH

2,500 2,000 1,500 1,000 500 0 2005

2010

Source: YJB reports

56

Youth custody

the population actually rose further, in part as a consequence of the government’s initiative on street crime. More places were commissioned, mostly within YOIs and a few in STCs. After 2006–07 there began a prolonged period of rapidly falling demand – just as well, because from 2008 the fiscal pressures required big savings, as they did for adult prisons. By 2013–14, far fewer young people were entering the criminal justice system, a remarkable 79% fall since the peak, and numbers in custody were down 63% against the peak in 2002 (YJB, annual report, 2013–14). So the YJB, having only just added new capacity, started to shed it. Up to 2011, the bulk of the closures were in the YOIs (nearly 1,000 places or a third of capacity was axed), and the number of places in SCHs dropped (by just 53 places, but enough to destabilise the precarious economics of these very high cost, tiny occupancy institutions, especially as local authority use of ‘welfare’ places was also declining; Mooney et al, 2012). 2010 Coalition government In the early 2010s, it was clear that demand was falling so sharply that more radical closures were possible, which were required in any case to meet sharp budget cuts that followed the 2008–09 banking crisis. The YJB’s budget was to shrink by 40% over 2009–10 to 2013–14, with spend on custody more than halving (YJB, annual reports and accounts). The YJB’s 2012 estate strategy signalled how this would be managed (YJB, 2012). Closures would now be mainly in STCs and SCHs, for several reasons: the bulk of closures to date had been in YOIs, the fall in demand was sharpest for those under 15, and coincidentally the STC contracts were about to fall in. By 2013–14, only nine SCHs were still under contract to the YJB. Such savings seemed to leave open the chance to fund improvements, including more specialised units, while conforming to lower budgets. The next panacea: ‘Secure Colleges’

However, in 2013, the new Justice Secretary, Chris Grayling, embarked on an entirely different course for youth custody, 57

Competition for prisons

just as he was to do for adult prisons (HC Deb 14 February 2013, col. 66WS; MoJ, 2013c). Everything done to date was written off as having proved very expensive, and failing to reduce offending. Instead, he proposed to build much larger units –’Secure Colleges’ – with much lower unit costs, as at Wrexham for adults. It was argued that the change was need in order to increase education and training (roughly doubling the number of hours), which would cut re-offending. At the same time, although the YJB was spared abolition, much of its commissioning and contracting powers were removed to the MoJ itself. Grayling was right to question what the enormous cost per place of STCs and SCHs had achieved. But, as with his attack on the probation service on similar grounds (see Chapter 14), he gave only part of the picture. The failure to cut reconviction rates must be seen in the context of the prodigious falls in numbers of juveniles entering the criminal justice system for the first time, and coming into custody. It appears that the much smaller group now in custody are very different in kind, with much higher risk of re-offending. (One might also argue that the YJB’s preventive work in the community had made a contribution to falling numbers entering the system.) So whether it is sensible to ‘blame’ the YJB for not reducing the re-offending rate of this much smaller, very different group (or to assume that Secure Colleges will succeed in doing so) is moot. Indeed, what these figures surely suggest is that what government does or says has much less effect on trends in offending, or re-offending, than long term social trends – like the changing patterns in use of drugs and alcohol by young people – whose causes (and future course) can only be guessed at. Moreover, it is not obvious that custodial institutions for juveniles should be judged only by reconviction rates. They look after some very difficult and some very vulnerable young people, and it surely is of some importance how well they do that. But such nuances were not of interest. The reaction of those with knowledge of children and child offending to the Secure College concept was almost unanimously critical. The main objections were that they would be: far too large for this age group; very costly, at a time of deep cuts on the 58

Youth custody

YJB budget; unsafe, in mixing very young children with older groups; too reliant on use of force, always contentious in youth custody; inevitably, far from home for many children. Moreover, there was no evidence at all for the proposition that they would do a better job of reducing re-offending rates (for example, Standing Committee for Youth Justice, 2013). To which one might add, why, if a lot more education and training is really the key, could that not be done in existing institutions at a tiny fraction of the cost? (The government’s plans do in fact propose some strengthening of education provision in YOIs.) These arguments had no effect, and enabling legislation (the Criminal Justice and Courts Act 2015) was put through. The MoJ announced that Wates was the preferred bidder to build the first Secure College, in the East Midlands, at a cost of about £85  million, to open in 2017 with 320 places for 12–17 year olds. The intention was to compete the operating contract separately: the operator, who seemingly would have had no input to the design, would be required to operate at ‘significantly’ less than the current average cost per head of youth custody, stated to be around £100,000 a year (HC Deb 12 June 2015, col. 318W). The government said that further Secure Colleges would not be rolled out until the first has been evaluated, which suggests that a second cannot open much before 2022 (though one recalls the commitment to evaluate the first contracted prison at The Wolds before proceeding with others, see Chapter 2). Grayling was unable to get the deal signed before the 2015 election, and his successor, Michael Gove, cancelled the entire project, partly on grounds of cost – but writing off some £6 million in sunk costs.1 The Secure College story seems uncannily similar to that of STCs, and many of the same objections apply. Indeed, the Secure College concept joins the long list of new custodial institutions for young people introduced with great optimism and little evidence, tried, found not be the answer after all, and be quietly discarded – a cycle mordantly illustrated by Hagell and Hazel (2001).

59

Competition for prisons

Competition? How far has there been actual competition between public and private sectors in youth custody? In some ways, it was more like a market than the adult system. The YJB had a freer hand in choosing between providers than HMPS/NOMS did, as it did not run any part of the estate directly, and was able to increase investment in or withdraw from SCHs and YOIs, though it was in practice bound to continue with STCs for their contract lifetimes, because of the high cost of exiting such contracts early. And the market was an interesting mix: two sets of different public providers, the SCHs and public sector YOIs, with the private sector running STCs but also several YOIs. But in practice, the potential for direct competition between public and private sectors has been very limited. First, the different parts of the estate specialise to some extent in offenders in different age groups and with different needs, though there is a significant group for whom the YJB has a choice: For the purpose of placing young people, the YJB views STCs and SCHs as broadly interchangeable, while recognising that there are some young people for whom only a secure children’s home environment is appropriate. This can be due to age (the YJB would not place a 10 or 11 year-old in any establishment other than a secure children’s home) or a particular combination of age and need. (YJB, 2012) Second, as Figure 4.2 shows, for much of the period the population pressures were such that it was more a question of making sure that every last available place was used, than making fine decisions about which provider to use. Third, even where direct competition was possible, there is such a huge difference in cost per place, staffing ratios and regimes between these institutions (see Figure 4.1), that the different types of institution could not be expected to meet the same standards, as the YJB accepted. 60

Youth custody

There has been no proper assessment of the huge investment put into the secure estate under Labour – about £0.5 billion for STCs alone – nor of the comparative cost and performance of the diverse accommodation models that had been developed in SCHs, STCs and YOIs. The YJB did commission a comparative study from the Institute of Criminal Policy Research – the report (Gyateng et al, 2013) described some important differences in approach and regime between the three sorts of institutions. But it provided no basis for assessing whether the much higher cost of SCHs and STCs had or had not, in some way been ‘worth it’. The Public Accounts Committee (PAC) was unimpressed: After ten years of having a dedicated youth justice system, the Youth Justice Board knew little about the relative effectiveness of interventions with young offenders. The Youth Justice Board had not been able to isolate which programmes had had the most impact on youth offending, and why. The Youth Justice Board also had limited information about the cost of different programmes, making it difficult to assess whether, for example, a Secure Training Centre, which cost £160,000 a year, was value for money in comparison to a Youth Offenders’ Institute, which cost £60,000 a year. (PAC, 2011a) (If there is one type of accommodation that seems to be singled out for praise, it is not the STCs but the specialised small units created within the YOI estate, such as the Keppel Unit at Wetherby YOI.) Conclusion Despite the varied provision of public and private sectors, there is little that can be said about their comparative performance and cost in this period, because there was little direct competition between the two. Consequently, the analysis in the rest of the book focuses on assessing competition between the two sectors where it did occur, in adult prisons (though that includes publicly and privately run YOIs). What is most striking about 61

Competition for prisons

the story of the YJB is the way the huge effort, expenditure and hope invested under Labour has simply been written off without adequate appraisal, and a costly new experiment started without any evidence or real argument to support it. It is a most depressing story but, as the final chapter concludes, entirely typical. Note 1

Guardian, 15 July 2015.

62

5

Related markets: electronic monitoring – fall of the giants The fall In July 2013 Chris Grayling announced in the Commons that his department had found evidence of serious and sustained overcharging by G4S and SERCO on contracts for electronic monitoring offenders – charges for people who were not being monitored, or who were in some cases back in prison, abroad or dead. This had come to light in preparation for re-tendering of the contract which dated back to 2005 (HC Deb 11 July 2013, col. 573). The overcharging went back many years, and involved tens of millions of pounds. Forensic audits had been started with which SERCO offered, but G4S initially refused, cooperation. It was G4S’s most unwise refusal which triggered Grayling’s reference of the matter to the Serious Fraud Office (SFO), even though he conceded he had no evidence of criminal behaviour. Officials had known “some of the issues around billing” as early as 2008, but “nothing substantive” was done. But – distinction! – while Grayling was “disappointed” that his staff may have known about this for years and done nothing, he was “angry” with the contractor. Grayling’s statement neatly disabled Labour. Not only had he already taken the most dramatic and comprehensive action possible but, as he quickly pointed out, the contracts had been left, and the malpractice started, under the Labour government, as Straw immediately recognised. Moreover referral to the SFO – not known for its speed of action – erected a shield against 63

Competition for prisons

awkward questions about his department’s precise role until after the 2015 election. (The NAO did indeed later decide that because of the SFO inquiry, they could not investigate the contractors’ assertion that they had told the civil servants what they were doing: NAO, 2013c.) The SFO investigation was still ongoing as this book went to press. What did the contractors do wrong? Extraordinarily, we do not yet have an account of what was done by whom and when – and may never have. We do not have the terms of the contract, the MoJ having refused disclosure on the puzzling grounds that it could prejudice investigations (puzzling, because of course all the parties know the terms – only the public is being kept in ignorance). Nor figures for how frequent the malpractices were and what proportion of the companies’ income was wrongly charged. Nor what was said to officials and when, and at what level. This secrecy is in part the consequence of the criminal investigation. But it also suits all the parties. The only public information comes from a truncated NAO report, which explains how the system worked, and some of the ways the contract was exploited by the suppliers (NAO, 2013c). Essentially, when given an order for tagging by a prison (for released prisoners) or court (for bail or community sentences), the contractor in that area visits the offender’s address, installs a monitoring device in the building and the actual tag on the offender’s ankle or wrist. The device then reports if the offender is absent during the curfew hours or tampers with the device. The contractor reports breaches of the conditions imposed (a home curfew of some duration), deals with technical breakdowns and eventually removes the equipment. The main way the contractors exploited these contracts was this. The contract stated that charging should end when the court order was terminated. For orders with an end date that set a limit to how long charging could legally continue. But the MoJ decided around 2010 not to put end dates on orders in bail cases, seemingly because when offenders were due back on court, contractors would remove their tags beforehand, only to find the court was not ready to make a decision, bail continued 64

Related markets: electronic monitoring

and the tag had to be re-installed. The system therefore relied on courts formally confirming to the contractor that the order was terminated. But in many cases, the courts just did not bother to do so, even after the offender had been discharged or gone back to prison. This is yet another example of the notorious unreliability of inter-agency communication within the criminal justice ‘system’, a point emphasised in the NAO inquiry, which gave examples where contractors had repeatedly tried, and failed, to get court and police to confirm that the order should be closed (NAO, 2013c). As the contractors had not been formally told to stop, they carried on billing, even though they knew that no equipment had been installed and no monitoring was being done. It is probable that this practice was legal, as strictly within the terms of the contract. But it was, of course, outrageous. But this was not the only reason these contracts were a gold mine. The contracts were in any case extremely lucrative, because of the way the MoJ had written them. The unit charge for each tag was largely inelastic with volumes – the unit price stayed the same however much volumes rose. Normally one would expect unit price to fall with rising volumes, as fixed overheads are spread over larger volumes (as was done for the escorting contracts). It is unclear why the MoJ contracted in this way. And the volumes did rise, hugely: numbers of new tagging doubled between 2005–06 and 2009–10; spending followed suit (NAO, 2013c). The contract did oblige contractors to tell the MoJ annually what their profit margins were. However, the operators had acquired or set up (at the MoJ’s request) separate companies providing the hardware and software, which then cross-charged the operating company, and this created a potential way of disguising the true overall margin. For example, the apparent margin of the SERCO company operating tagging was around 1%, but the margins in their software company, SERCO Geographix, were in the range of 54–80%.1 It is unclear why MoJ did not spot this loophole. ‘Open book’ accounting is not much use if you never open the book. So the contracts were extraordinarily generous in the way they were drafted but, on top of that, the charging mechanism was 65

Competition for prisons

one that could be milked. And it was. Not without misgivings: within one company, at least, there was lively discussion whether they should open up the billing issues with the customer (private communication). Disastrously, that was not done. Why did they behave like this? Simply: greed, and opportunity. Chapter 6 explains that not only do different companies have very different cultures, but within one company the culture can be hugely influenced, for good or ill, by personal leadership. Both SERCO and G4S were at this time led by people who set growth in business as the top priority. Chris Hyman at SERCO had promulgated his ‘2020 vision’, which among other things, aimed at heroic increases in revenues. Similarly Nick Buckles at G4S.2 To achieve such high growth targets, contractors took on contracts that were very risky and/or proved unprofitable to operate, but then they were stuck with them. To make up these losses, and meet investors’ expectations, the companies needed to exploit every opportunity in other contracts. Impact The fallout from the scandal has been immense, not only for competition in prisons and of course the companies concerned, but for outsourcing public services generally. The MoJ announced that for the moment no further contracts would be awarded to either company, and they both immediately withdrew from the electronic monitoring recompetition. Audits were set running on all their contracts within MoJ, and audits simultaneously took place of contracts across government. In October 2013 Chris Hyman Chief Executive of SERCO and Richard Morris Chief Executive of G4S UK resigned, followed in November 2014 by Alastair Lyons, Chair of SERCO. SERCO had been announced as lead bidder for Hatfield, Moorland and Lindholme prisons, but in November Grayling announced that because of the delay due to the scandal, they would remain in the public sector (HC Deb 22 November 2013, col.66WS). In December, Grayling 66

Related markets: electronic monitoring

announced that the SERCO and G4S electronic monitoring contracts were being taken over by their rival, Capita (HC Deb 12 December 2013, col. 63WS). The results of audits into their other contracts in MoJ and across government were reported in December 2013 (HC Deb 19 December 2013, cols 121WS and 128WS). The financial cost was high: SERCO had to repay £70.5 million, G4S £108.9 million (HC Deb 12 March 2014, col. 27WS). Both companies were obliged to sign up to ‘corporate renewal’, to ‘purge themselves’ to Grayling’s satisfaction, a process supervised by a government appointed ‘oversight group’ (unfortunate term, in the circumstances!).3 It is difficult to quantify the companies’ losses as a result of the scandal because for both of them other things were going wrong at the same time. SERCO had relied heavily on profits from outsourcing immigration detention in Australia but these slumped following changes in policy that reduced demand,4 and its contracts to maintain Australian naval ships was also in big trouble.5 SERCO was more exposed to the scandal, relying on the UK government and public sector for a much bigger share of its UK revenue (25%) than did G4S (10%) – a dependency Hyman had been trying to reduce.6 SERCO’s pretax profit of £106 million for the first half of 2013 turned into a £7 million loss for the same period in 2014. In November 2014 SERCO announced the write down of £1.5 billion for losses on contracts, forcing it to turn to shareholders for a £0.5 billion rescue rights issue.7 Its share price dropped over 80% against its pre-scandal peak (commentators even wondered if government was trying to provoke a takeover8). G4S recorded a £170 million pre-tax loss in 2013, but pulled round in the first half of 2014 to a £85 million pre-tax profit, and the share price was about 15% down on the 2013 peak at November 2014. Both have suffered very serious, very long term reputational damage. For G4S, this was on top of public outrage at its failure to honour its contract to guard the 2012 London Olympics, a gap the hard-pressed army had to fill. For SERCO, on top of cancellation of its contract for out of hours GP cover in Cornwall in 2013, following failure to meet standards and charges of falsifying data. This is the sort of public disgrace that it takes companies decades to erase. 67

Competition for prisons

Public support for outsourcing is likely to reduce. Polls show that the public were already more wary of contracting out of prisons than, for example, services supplied by local councils. In a 2012 poll (Populus, 2012), the figures were even more negative when SERCO or G4S were mentioned. The figures are likely to be even more negative now. Yet outsourcing will continue – generally, if not in prisons. The Conservatives’ faith in the private sector seems impervious to all contrary evidence. And with further spending cuts in prospect for the new Conservative government elected in 2015, outsourcing is indispensable. But things will change for outsourcers. Government procurement officials will now be meticulous in policing contractual terms and scrutinising bills – contractors say this has already led to a less cooperative style of contract management (one says “we used to win 50% of discussions around the contract, now it’s 5%”: private communication). And outsourcers will be much more wary of repeating the fundamental mistake of SERCO and G4S. This was to grow business at all costs, even if it meant low profits or none, and accepting more risk than was wise, in the belief that they could make it up by exploiting a few ‘cash cow’ contracts, unchallenged by complaisant or incompetent officials. They will now have to play contracts by the letter. That implies that bid prices will have to rise significantly – or they may refuse contracts that do not look profitable. The taxpayers will have to fund this new found rectitude (but of course, they were also funding the old style laxity). Robert Peston, for the BBC, pointed out that beyond a point, harsh treatment of errant outsourcers may damage government itself as customer.9 The untold half of the story The story line so far – that huge private companies had ripped off the public, been found out and made to pay up – is true: but it is only half the story. Government itself had much to answer for.

68

Related markets: electronic monitoring

What had MoJ officials known in the 2000s? Who had they told?

SERCO and G4s both say they did tell officials what they were doing, years before the scandal broke, in particular their interpretation of the contractual provisions regarding billing (NAO, 2013c). If the customer had been told plainly what was going on, there is of course no question of fraud, and the scandal is as much about official negligence as private sector greed. For the moment, the SFO inquiries conveniently stymie any disciplinary action.10 And there are signs already of the all-purpose Civil Service ‘get out of jail free’ card – everyone involved has moved on, new officials are guiltless and busy ‘learning the lessons’.11 ‘Corporate responsibility’ is for corporations – not officials. Why were the contracts so easy to exploit?

This question has yet to be examined publicly, and may never be. The Commons PAC fluffed the chance it had to examine the contracts in 2014 (see ‘Non-barking watchdogs’). There are several obvious questions. Why were unit prices fixed, rather than varying with volumes? Why create an opportunity to hide cross charging between companies? Why was the risk created in 2010 of not automatically terminating orders in bail cases? None of these questions has been asked, let alone answered. Why did MoJ not manage the contract properly?

If the MoJ was being ripped off to the tune of hundreds of millions of pounds, how come it did not notice – for nearly ten years? For instance, why, given the vulnerability of making termination dependent on a formal notice from the court or police, was no effort made to check on a sample basis how well that was working?12 And why did officials not spot the issue of cross charging between operators’ companies? We have some answer to that through the audits that have been carried out on contracts firstly within the MoJ, and secondly across government (Cabinet Office, 2013; MoJ, 2013b; NAO, 2013c and 2014b; PAC, 2014c). What they reveal is a state of 69

Competition for prisons

incompetence and indifference within government that is, in its own way, as breathtaking as the contractors’ malpractice. The cross government audit found ‘significant weakness’ in the majority of contracts in terms of, for example, over reliance by officials on suppliers’ self-reporting, and shortcomings in numbers and competence of civil servants to effectively manage the contracts. The MoJ audit (see Figure 5.1) found, in a sample of 17 major contracts: • every single contract revealed inadequate governance arrangements, creating ‘Significant risk that contract management activities are not being undertaken’. • In 12 out of 17 contracts, staff lacked capacity or competence to manage contracts properly, and were unclear about their roles and responsibilities; • In 12 out of 17 contracts, there were deficiencies in checking of service delivery and of bills, precisely the weaknesses that had led to wrongful payment of hundreds of millions of pounds. And on five out the seven operational contracts MoJ examined – contracts for services controlling or supervising offenders, on which the safety of the public depend – contained findings flagged as ‘red’, meaning: ‘There is evidence of gaps or weaknesses in contract management such as to give rise to the risk of material errors or irregularities in charging, or a significant operational failure.’ And these included precisely the contracts that had been so exploited by the suppliers. (Notably, the prison contracts were in less worrying shape.) The auditor concluded that there was evidence of ‘long standing and significant weaknesses in contract management at the department’ (MoJ, 2013b). Other information comes out of the NAO inquiries (2013c, 2014b) and the PAC (2014c) on the affair, including some remarkable admissions by the MoJ’s Permanent Secretary. Fundamentally the problem was cultural: the mandarin mindset neither valued nor understood contract management skills (NAO, 2014b). We know that the department’s procurement 70

71

£m 28 19 29 41 35 37 11 4