UK

Reshaping the state–Is it working?

Ignore the ideological debate–Do public service markets work?

July 30, 2013
Serco operates the Docklands Light Railway (Image: Marcio Cabral de Moura)
Serco operates the Docklands Light Railway (Image: Marcio Cabral de Moura)

Over £100bn of taxpayers’ money passes through some form of public service “market”, where government encourages organisations to compete in providing certain public services. Operators from the private sector, charities and public bodies jostle to convince those in power that they can provide the best quality of service at the best value for the taxpayer. As the election nears, the Government must show it has a grip on public service markets–and prove they are delivering results.

In 2010, the Coalition embarked on a slew of reforms aimed at reshaping public services. Developed largely in opposition before the financial crisis, radical changes in health, education and elsewhere were to be implemented with no extra money–and quickly.

The Coalition reforms have not been entirely co-ordinated. We talk of “Lansley’s health reforms" and “Gove’s Academies programme” because of the importance of these ministers in leading specific changes.

Yet reforms have been underpinned by the common theory that competitive markets will deliver better results than monopolies, even in public services. David Cameron explained in 2011: “From now on, diversity is the default in our public services… instead of having to justify why it makes sense to introduce competition, as we are now doing with schools and in the NHS, the state will have to justify why it makes sense to run a monopoly.”

But mismanagement of private sector contractors is becoming a source of perpetual embarrassment. Most memorably there was the failure to ensure G4S delivered on its contract to provide Olympic security. Then there was the West Coast Mainline refranchising “fiasco”, which so far has cost taxpayers well over £50m.

Last week we published Making Public Service Markets Work, a report that found deep-seated problems within four big markets: secondary education, employment services, probation and social care.

A common issue was a lack of adequate information for users and commissioners. In the care system, for example, the 2010 removal of star ratings (a decision which may now be reversed) exacerbated existing problems for both private individuals and local authority commissioners in finding high quality care.

Gaming, also a blight of public sector management by targets, is widespread. This is a behaviour we found in all sectors where providers sometimes responded in undesirable ways to the reward structures created by commissioners and regulators. Such ‘gaming’ behaviours included the ‘creaming’ of users who are easier to support, and therefore more profitable to serve.

Competition itself often produces perverse results: meaning, for example, that the more cost-effective providers might be the ones that fail. Schools with overlapping catchment areas on different sides of a county boundary can, for example, receive significantly different levels of funding for each pupil they teach–a problem that the Government has now promised to address.

Problems found were not limited to for-profit providers. There were examples of high and low quality providers in all sectors–public, private and voluntary.

The main conclusion from the Institute for Government’s research is that Whitehall still lacks many of the skills and techniques it needs to manage public service markets effectively – and that there is a mismatch between the pace and scale of change and government’s capacity to deliver.

Government should, therefore, correct flaws in public service markets before creating new ones. Departments must also demonstrate that they can genuinely sanction underperformance by independent providers, while not scaring too many providers away from the UK.

If government does not raise its game the education of our children, the care of our parents and the skills of our workforce will all suffer. The government must also be aware that public support for the opening up of public services is, after all, mixed–particularly on the question of private and voluntary sector involvement. Though people care most about the quality of services, not who provides them, half of people agree that ‘public services have more to gain than lose from making use of the expertise of private and voluntary sector organisations’, according to a 2012 Populus poll. To keep the public onside, this Government will need to demonstrate that it has a grip on public service markets and is making them work.

The Institute for Government's report, Making Public Service Markets Work is featured in our Think Tanks section and can be read here

UK