Whitehall doesn’t know how well Payment by Results is working, says NAO

19 Jun 15

Neither the Treasury nor the Cabinet Office currently monitor how well payment-by-results schemes work, despite £15bn being spent through the contracts, the National Audit Office has said.

There are at least 52 PbR schemes currently operating including high-profile initiatives such as the Work Programme and the Troubled Families Programme.

The contracts are intended to incentivise firms taking on public services to innovate in areas such as getting people into work or improving children’s school attendance, as most payments are only made when targets are reached.

The watchdog highlighted that a PbR approach was not suited to all public services, but it was often not clear why departments and other commissioners had chosen this method.

In addition, the risks were often underestimated, according to the Outcome-based payment schemes report. Although PbR transfers some risk to the provider by making payments dependent on performance, commissioners needed to be aware of the risks they retain. For example, if providers do not meet their objectives, commissioners would still need to provide services, the NAO stated.

These problems were in part due to the lack of systematic collection or evaluation of information on their effectiveness, and there was also no best practice evidence that could be used.

This lack of central expertise also meant commissioners were in danger of “reinventing the wheel” for each scheme, despite the design of PbR schemes taking time and effort to get right.

Both the Treasury and the Cabinet Office should agree on a repository of information and expertise about public sector use of PbR. This could then be used to inform the development of future schemes.

Auditor general Amyas Morse said supporters of PbR argued that, by their nature, the contracts would offer value for money, however, they were in fact difficult to get right. There were potentially risks and costs for commissioners, he said.

“Payment-by-results potentially offers benefits such as innovative solutions to intractable problems. If it can deliver these benefits, then the increased risk and cost may be justified, but this requires credible evidence.

“Without such evidence, commissioners may be using this mechanism in circumstances to which it is ill-suited, to the detriment of value for money.”

Responding to the report, a government spokeswoman said: “Payment-by-results can of course improve our public services because taxpayers ultimately only pay for what is achieved, raising efficiency and providing value for money for the taxpayer. We will learn lessons from the report.”

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