Payment-by-results could drive out smaller charities, say leaders

The Conservatives mooted plans to expand the use of payment-by-results in public service delivery before the election, since the system has been employed to incentivise health and welfare-to-work providers for some time.

Junior children's minister Tim Loughton said at a conference last week that the Department for Education is "investigating" ways in which to use payment-by-results to improve cost-effectiveness in children and young people's services. "That's only right and sensible, particularly in current circumstances," he said.

Justice Secretary Ken Clarke announced also last week that payment-by-results would be used to help rehabilitate offenders. But the model would be new to wider children and young people's services.

Kathy Evans, deputy chief executive of Children England, which represents more than 100 children's charities, said organisations could struggle to stay afloat under such a system. "Payment-by-results infers that payment is made after costs are incurred,"

she said. "That represents an accounting revolution. An organisation's ability to pay staff and pay for premises on the expectation of getting paid would be a major challenge."

She added that it is difficult to impose a timescale on when a project can be deemed to have worked. "With intervention work in the early years, we can be talking about seeing the outcomes in adulthood."

Sir Paul Ennals, chief executive of the National Children's Bureau, argued that introducing payment-by-results could encourage providers to skew services towards making short-term gains. "Payment-by-results could lead to designing services around the funding rather than around what the evidence shows works," he said. "I'm not against it in principle; I'm just unconvinced that we have a good model to deliver it in practice."

He added that payment-by-results would favour larger charities and providers, despite the fact that government wants small grassroots organisations to deliver services as part of the big society vision.

"If we want small charities to be service providers, most of them wouldn't have the working capital to be able to wait until the outcomes have become evident for their funding," Ennals said.

But Joyce Moseley, chief executive of youth charity Catch 22, urged charities not to fear payment-by-results.

"We should be able to put our money where our mouth is," she said. "Payment-by-results might not work for early intervention schemes, but that doesn't stop us using it for other projects with more immediate outcomes."

PAYMENT-BY-RESULTS

• Payment-by-results was introduced to the NHS in 2002 as part of an overhaul to improve cost-effectiveness, reward efficiency and promote patient choice
• Labour used part payment-by-results to incentivise welfare-to-work providers
• The new government plans to expand the use of payment-by-results and has promised to provide higher payments to providers that get the long-term unemployed into work
• Justice Secretary Ken Clarke announced last week that payment-by-results would be used to help rehabilitate young offenders
• Tim Loughton confirmed the Department for Education is "investigating" ways in which to use payment-by-results

Read CYP Now editor Ravi Chandiramani's leader.