The Problem: Short prison sentences are expensive and lead to re-offending.
The Solution: ‘Unlimited’ financial rewards for companies that prevent re-offending.
I was reading an article in the Economist which described how ineffective short prison sentences were, leading to high re-offending rates and significant cost to the taxpayer (of about £35,000 per year, per inmate).
Yet there are many stories of former criminals providing valuable services for companies and business, so it led to an idea for a new way to solve this particular problem.
It’s a variation on pay-for-outcomes probation, but with a difference – instead of a fixed payment per success, the potential rewards are unlimited.
The concept is this; an organisation takes on the financial risk of paying for the prison sentences for repeat offenders, but in exchange it is guaranteed all income tax revenues paid by those criminals who are reformed into society for their lifetime (or 20% of pre-tax revenues should they move abroad).
The government makes a guaranteed saving of £35,000 per offender per year, plus the additional costs of parole officers, courts, and so on.
The organisation taking on the risk can receive ‘unlimited’ income from the scheme, if one of the offenders goes onto become a millionaire, for example.
With fixed payments per individual for success, the risks for an organisation are high and the rewards are low, so you tend to get low-quality programmes. When the rewards are ‘unlimited’, however, the maths changes.
Suddenly there is an incentive to get better people and better processes and support in place, because the potential gains are so lucrative.
By way of example, let’s say you have 10 offenders. The risk is £350k per year if they all go onto re-offend. But if they reform and pay an average of £4k income tax per year, the yield is £40k per year for, say, an average of 30 years each, so that’s a lifetime value of £1.2 million.
Not amazing, but not bad.
But let’s say 1 of the individuals goes onto earn the big bucks, and pays income tax of £350,000 per year for 30 years. The lifetime value is now closer to £10 million.
Getting financial entities to insure the risk of re-offenders in exchange for receipt of all future income tax creates an economic incentive to expend resources on these offenders to turn their lives around and get them earning money.
It alleviates cost to the state and creates a space for innovation in the social sector, justifying spending more resources and offering better support than stretched councils and other public bodies can afford.
So, we get fewer people going back to prison and the taxpayer saves money – all the financial risk is borne by private sector financial institutions.
Such an idea could see, for example, a venture capital fund raising money to insure the risk and fund the reform programmes, which offers dividends to investors from the gains received.
A powerful way to make private capital solve societies problems, all at no cost or risk to the taxpayer.
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