Private probation firms face huge losses despite £342m 'bailout'

Private probation companies responsible for supervising more than 200,000 offenders in England and Wales face total losses of more than £100m, even after a £342m “bailout” by the Ministry of Justice, MPs have been told.

Ministry of Justice officials acknowledged on Wednesday that 14 of the 21 community rehabilitation companies were expected to make losses ranging from £2.3m to £43m by 2021-22, partly due to a sharp fall in the number of offenders being sentenced to community punishments.

Details of the state of the part-privatisation of the probation service – introduced by Chris Grayling when he was justice secretary in 2015 – were revealed during a Commons public accounts committee session. MoJ officials declined to comment on whether outsourcing was “an appropriate model” for probation services when pressed by Labour MPs, saying that it was a political question.

During the hearing, Richard Heaton, the MoJ’s permanent secretary, sought to reassure MPs that maintenance contracts for 50 public sector prisons that have been held by the failed outsourcing company Carillion would continue uninterrupted, with state prison staff ready to fill any gaps. Senior MoJ officials even suggested that repairs and maintenance at some jails could improve as a result of a more direct management relationship.

However, they refused to speculate on the position of a second major outsourcing company, Interserve, which is the largest probation provider, with five companies supervising 40,000 offenders in Manchester, Liverpool, Humberside and Hampshire. They said that they had an “open book relationship” with the company, with access to their internal figures, as well as external auditors taking an interest.

Michael Spurr, the chief executive of Her Majesty’s Prisons and Probation Service, told MPs that the future of the private probation companies would be clearer after talks at the end of this month when new figures on reoffending rates were published.

The income of companies is split between fixed-fee payments for supervising offenders on community punishments, and payments-by-results for rehabilitation work with offenders, including 40,000 short-term prisoners upon release. It is possible the companies could receive extra payments-by-results of between £32m and £128m up until 2021-22 for cutting reoffending rates.

Spurr said talks would be held with the companies and then ministers on what further steps might be taken depending on the reoffending data. A National Audit Office report said initial figures showed that the number of further offences committed was actually rising, which could affect the future income of the companies.

Spurr confirmed to MPs that talks were also being held about whether the probation companies could be given extra work.

He refused to accept that the MoJ had been engaged in a “bailout” of the private probation companies, saying the £342m in additional fees and projected payments up until 2021-22 amounted to “windfall savings that had been put back into the contract”.