Central and Local, Market and state: the Conundrums of Public Service Reform


director of institute of public and economic governance University of Manchester


The UK remains a world leader in public service innovation. Since the 1940s, wave after wave of reform has been applied to the public services. In health, education, social care and transport reform has sought to improve levels of performance within a framework of services which are for the most part free at the point of use, publicly provided or both.  The role of the market has ebbed and flowed (with more flowing than ebbing), the balance between services for which there is national rather than local accountability rising and falling and the steady rise in contractual forms of accountability even within the public sector has been inexorable.

This paper argues that the blanket marketisation of public services may well be under a more sustained challenge than at any time in a generation with the remaining marketisation agenda likely to prove ever more contested and controversial. The post-2001 government reforms may turn back the tide of centralisation which began during the 1940s.  However, in the short term these reforms will be tentative, administrative.

The Emergence of the Welfare State
In 1942, Churchill wrote a Cabinet Minute in response to the Beveridge report on the post-war Welfare state in which he warned colleagues to ‘be careful not to raise false hopes’ adding that ‘it is because I do not which to deceive the people …by airy visions of utopia and Eldorado that I have refrained so far from making promises about the future’.  In the event, for soldiers retuning from duty in the Second world war, the dole queue was more evocative than El Alamien, to quote Anthony Howard, Churchill was removed from power and the Atlee Government with its massive majority went about its business, implementing Beveridge and Keynes in the creation of a post war welfare state the core, though not all aspects of the form of which still lie at the hart of British political culture. Churchill’s advice seems as well suited to the modernisation of the welfare state as it was to its creation.

Only modest progress towards a functioning if far from universal welfare state had been made in the 1930s. By 1937 social insurance provided health cover for 11 million insured people (but not their families).  Also by 1927, 14 1/2  million workers were covered by compulsory unemployment insurance and  the Poor Law had been rendered more humane through a much less rigorous insistence than hitherto on the principle of less eligibility.  For most working people however, the pre-war welfare services came at a deep cost to their personal dignity. Services were far from universal. Accidents of classification, arbitrary distinctions and selective treatment were commonplace. The universalism claimed by the Government in 1931 was nothing of the sort. The draft and the evacuation of children both cast a harsh light on the British population, revealing the consequences of the squalid conditions in which many people lived.

In was in this national context, and with the clearest possible mandate from the electorate, that the post-war Labour Government began the task of creating a universal welfare state offering universal protection from cradle to grave along the lines suggested by Beveridge in his wartime report. Beveridge was a liberal. Yet his liberal instincts had been tempered by the circumstances in which he drew up his plan. The relative success of pre and post-war Soviet Russia and the war time mobilisation both provided powerful counterweights to the fragile and inadequate, locally-based, market and voluntaristic systems which characterised pre-war welfare and much mainstream political thinking in the UK. So it is not particularly surprising that the institutions, processes and values of the post-war welfare state reflected this: centralised in nature, with a limited role for local authorities compared with the pre-war period and little local discretion within nationalised services, planned rather than market driven and based on strong nationally organised hierarchies.

All of the major public services have been through major programmes of reform during the post-war period as economic fashion and political control has changed. Despite this, in relation to health and the benefits system the foundations of policy and proactive have remained firmly based in the nationalised model of the 1945 Government. Elsewhere, in education and in local government, the tide has turned and turned again. On balance executive authority if not day to day control probably now lies closer to the centre than at any point since the war, even if the means by which it is achieved are somewhat less Stalinist in nature.

The Need for Reform
The critical question for social democrats and liberals alike is whether or not the public services are improving and if so whether they would have improved more had they operated under a different regime. This last question is and ever will be unanswerable as matter of fact. There is no counterfactual. Nevertheless the fact is that we now have a comprehensive welfare state, and one what has stood the test of time whilst remaining true to its founding principles is a tribute to the post 1945 Government.

But it is far from perfect. It, like the military and centrally planned models upon which important aspects of it are still based, can provide standard goods and services in large quantities in response to need identified at the centre. In the market economy of consumption, this model has long since passed into obsolescence. Mass markets have evolved into niche markets. Competitive advantage and consequential customer loyalty have relied increasingly on product and service innovation. The NHS and other public services have maintained popular support in this environment despite offering relatively little in this area. The patient and pupil experience is not vastly different now to twenty years ago relative to other services. In health for example, hospitals are able to provide access to a much wider variety of services, but with investment generally trailing behind demand, queuing is the norm. The system has not delivered anything like the transformation in customer experience or of consumer power more generally, both of which are now driving forces within economy and society. So the question of whether the welfare state should become more consumer oriented is slightly irrelevant, since the wider the gap between peoples’ experience of privately and publicly consumed services, the more the legitimacy of the public services will be undermined, and more pressing is the need to decide how services should be reformed if they are to survive for a further generation.

Note this is not an argument for introducing choice in areas where it may not work. It is simply to say that the status quo is an option whose popular support can be guaranteed when its outputs are increasingly out of kilter with the expectations of all but the most disadvantaged in society. If we do not look fundamentally at how public services are delivered it can only be a matter of time before their very existence is called into question, and the greater still will be the resistance towards the extra investment required to fulfil their full potential.

What we do have is 60 years of experimentation and a wealth of analytical tools drawn from the social sciences to enable us to ask search questions of our public services.

By far the most powerful critique of the monolithic public services of the post war period comes form economics, the discipline whose concepts and prescriptions have dominated the period since the late 1970s. In a range of service areas, economics suggest s very strongly that national forms monopoly of control and delivery are unlikely ever to provide optimal solutions. In health and in benefits, they produce both allocative and technical inefficiencies. Allocative efficiencies are likely to occur when the balance of provision between services is decided at the national level in circumstances where the balance between, for example prevention and ameliorative services is either more obvious at the local level or highly variable between local areas. Even where this is not the case and a standardised methodology ensures that the right services are delivered, there may still be market failure if lines of communication are too long and information asymmetries occur, resulting in agent principal problems.

The unitary nature of the British state may itself also be a barrier. The talk on devolution discussed how centralisation of decision-making in central government.

Lets take this analysis further and ask, is it possible to have a system of responsive public services in a nation of over 50 million people (England), where all meaningful political authority derives from one central source?

Let us look at political power as a market. This is a concept usually used in public choice theory to describe how governments fail for example because they succumb to peoples’ rent seeking behaviour. But look at it another way. In any policy there is a finite amount of power. Much as in any market, if all that power is in one institution, there is no contestable market as you have a natural monopoly. This is what we have now in England.  In other jurisdictions, where in a direct analogue with competition laws, there are constitutions which guarantee rights for lower tiers within the overall polity, there is, at the margin, competition. This may be bad competition – trade subsides between localities and states for example – or it may be good competition such as that between localities and the centre over who has got the most efficient policies for labour markets or community cohesion. To take an example used in the paper on devolution, the case of regions and whether Scotland has got a better and sustainable model for elderly care and tuition fees than England does. Diversity in the market and policy centricity in the state encourages innovation and competition. The case for devolution is economic as well as political. Moreover, devolution needs to be of political accountability as well as administrative structure.

The Origins of the New Labour Approach
Elected on a neo-liberal agenda of rolling back the frontiers of the state, the response from the Conservative Governments was to run the public sector more like the private sector. The application of business principles, a feature of British public administration for the last quarter century, has become know as the New Public Management (NPM). The NPM presents a complex set of ideas. It has evolved and developed different themes. The version most clearly embraced by the governments across the western world rested on a critique of existing forms of service provision and a prescription for improvement based on introducing market-like disciplines.  Public service organisations, so the argument had it, were dominated by producer interests (the bureaucrats and the various ranks of other employees). Unlike in private sector organisations the power of the producer was not held in check by market incentives and demands. As a result public service organisations tended to be neither efficient in terms of saving public money nor responsive to consumer needs. The solution was to fragment ‘monopolistic’ public service structures and develop quasi-market forces to govern the way that they operated.   Key reforms included the introduction of a purchaser-provider divide within organisations and the development of performance targets and incentives. The aim was to create an organisational ‘home’ for the client/consumer voice within the system in order to challenge the power of producers. Consumers or their surrogate representatives as regulators or commissioners would have the power to purchase the services they required and measure performance.

In essence it is a model which has found favour under since 1997 under the new Labour Government but in a way which has generally (though not exclusively) lacked the dogmatism in public service reform which dominated the early Conservative years. Tony Blair, the Prime Minister since 1997 prides himself on his unideological outlook. One of his more memorable lines, used often during the early days of his premiership in response to questions as to whether markets or state offered the best solution was, ‘what we want is what works’.

Labour in Government – the First Term

So what does the Labour reform programme look like in action? How is it different form its predecessors and how is it changing?

In the event a distinctive approach took time to develop. The first priority for the new Government was to avoid the Sterling crisis which had beset every post war Labour Government, which in practice meant fiscal restraint for the first two years and limited opportunity to oil the wheels of reform with extra investment. But there were innovations in the first term.

Several not altogether coherent strands of reform can be detected:

Initially there were major reversals in high profile Conservative programmes for education, through the abolition of incentives to encourage schools to opt out of public control and the abolition of the internal market between General Practitioners (local doctors) and hospitals was abolished. The crude and deterministic process by which public sector functions were contracted out was replaced by a more subtle approach, with the emphasis on securing the best outcome rather than the process by which it is achieved (local government best value or the Better Quality Services initiative in central government).

Nonetheless Labour in Government was initially and remains in favour of public private partnerships (PPP). The Private Finance Initiative, a Conservative invention, was rescued from the quagmire created by the requirement that every service be tested. Nearly every PFI project in the UK was signed under the Labour Government. New forms of  PPP were undertaken including that for the construction of the Channel Tunnel Rail Link between London and the English Channel, and strategic partnerships such as that for the Passport Office which went to the heart of the previously untouchable public sector. Elsewhere the Government pushed through the part privatisation of the National Air Traffic Services and other, similar projects many of which had been thought too risky, even by the outgoing Conservative administration.

In the ‘core’ public services, the case that the first term was a period of radical reform is hard to substantiate. On the contrary, it might better be described a period of institutional and financial tinkering, reflective of the early domination of fiscal restraint and the newness to office of almost every Minister in the new Government.

There was a proliferation of Action Zones, local targeted initiatives for Health, Education and Employment, in which radical ideas were piloted. There was an array of other area based programmes for regeneration and social exclusion, often involving the development of local partnerships and in schools and Local Authorities there was a growth in the level of hypothecated or ring fenced funding, usually accompanied by the requirement for a plan. By 2002 an upper tier Council would have over sixty separate plans to produce.

Amidst all of these initiatives was on which was to assume particular importance. It was not radical in its conception. But its impact is hard to underestimate. It was the Numeracy and Literacy Strategy adopted by the then Department for Education and Skills.  This approach was based on the observation that in Primary Schools across the Country, a plethora of approaches were being used to teach children how to read and write, with vastly differing but generally substandard results. The Secretary of State’s new adviser, Michael Barber a Professor of Education devised a plan whereby teaching of numeracy and literacy would be standardised in every school. Standard methods and materials, timetabling and management. To encourage schools, funding was made available to assist the new approach, not as general grant, but tied to the introduction of the new reforms.

Across the Government one radical innovation was the introduction of Public Service agreement to govern the requirements – in particular the aims, objectives and targets – of Departments – in exchange for the money allocated to them by the Treasury. Under the new system, resources are fixed for three years and broken down by programme, performance targets and improved productivity targets.   Public Service Agreements are a departure in a number of ways:

– they shift departmental planning to a three-year cycle (departments previously had annual budgets);
– Ministers rather than just the agencies they control were made responsible for delivery; and
– They were aimed at fostering a culture in which Departments managed within their resources rather than referring to the Treasury for more money.

So what to make of Labour’s First Term.

It was in many was a great success. It was without question the most successful Labour stewardship of the national or macro economy. Little was done to harm the supply side whilst and measures such as the minimum wage and Trade Union laws reversed. These measures and others including the incorporation of the Social Chapter of the Maastricht Agreement increased significantly the level of social protection in the UK

New Labour in power placed the public services at the heart of its public service reform programme. But it had limited resources and the need to drive more efficiency out of systems. It had also to do so without breaching the need maintain continuity with the traditions of a welfare state in which most services are free to consumers at the point of use . The problem in practice has been that after twenty years of marketisation driven by Conservative Government for whom privatisation and marketisation were not means to an end but ends in themselves, the areas in which markets remained to be applied were far from straightforward. In some, such as health, an internal market for allocating resources within a public system had been tried previously, but with limited success. In education and health, moves to change the balance between the state and the market under the Conservatives had met with considerable public opposition. And in others, notably the benefits system, the need maintain a tolerably efficient service during long periods of high unemployment along had been one among many reasons (along with its totemic status) why marketisation and privatisation had had such limited impact.

Labour did not have a coherent response to this phenomenon in its first term. It was in general a period of experimentation. The problem was that the experimentation by the end of the period was occurring on quite a large scale. From the outset and later, aware of the pressing need to deliver and emboldened by the success of the Numeracy and Literacy Strategy, Ministers became tempted to micro-manage reform from the centre. Partnership overload became a major problem for public service chiefs on the ground. Organisations with limited numbers of staff were on a treadmill of initiative after initiative. This created a degree of path dependency with each one looking rather like the last. It also reduced both the performance of individual organisations on the ground and the effectiveness of the overall reform programme. As the Government admitted in its second term, the first was beset by too many initiatives and a surfeit of targets.
The centralisation of power in Whitehall is not a new phenomenon, but it is one which has dominated recent British history. Driven by the demands of the electorate for more and better services but without a clear mandate to raise taxes significantly, the reflex response of every government has been to assume responsibility. Over the period since the 1970s, the size of the public sector has declined but the balance of power of what remains has tilted firmly towards the centre as Ministers grapple with the task of squeezing more service delivery out of the civil service and wider public sector.

The Second Labour Term

Following the election of 2001 there was a tangible sense of the need to change. The election itself had been in some respects little more than a referendum on the public services in general and on the National Health Service in particular. As the Chancellor has made clear at every Budget-related statement if not every speech since then, the second term is about investment and reform. But what reform?

Some of the projects run by the Social Exclusion Unit had used area-based programmes to tackle cross cutting problems such a rough sleeping to great effect. But rolling this approach out to too many issues would simply worsen the problem of initiavitis. Public Private Partnerships had a continuing role to play. But where was the grand plan at the centre of Government’s programme? In his own mind Tony Blair was clear that the second term was the moment when the nettle of reform had to be grasped. And grasped it was.

Public Service Reform has become the new agenda and at the heart of it are two themes which, though not necessarily opposed, certainly do give rise to considerable tension. They are the rise of what has been termed the new localism and the development of a new and more aggressive system of market-based performance management.

Both are evolving concepts which are reflected to the principles of public service reform set out by Tony Blair early in his second term.

The Principles are as follow:

– A national framework of standards and clear accountability, to ensure that citizens have the right to good quality services whoever they are and wherever they live.

– Devolution to the front-line, allowing greater freedom and room for innovation so that local services continually develop and improve.

– Flexibility so that local organisations and their staff are better able to focus on delivering what people need and want.

– More choice for customers and the ability, if provision is poor, to have an alternative provider.

Only one of the principles was new – the emphasis on choice. The others were the corralling of pre-existing reform messages into a single list which along with the Chancellor’s emphasis on ‘investment plus reform’ are at the heart of a reform process which is taking on its own distinctive characteristics. It is undogmatic. Indeed it is pragmatic. Some, even within Government question whether or not these are really principles at all since taken literally they might each perfectly well point services along very different paths of reform. And, as those involved in drawing them up have always made plain, the key issue is not the principles per se, but the tension between them. This is the essence of the second term project: building on the decisive move away from dogmatism by adding a narrative for what this means in practice.

But how to make reform a reality? In the event the Government turned to the people and methods which had brought one of the biggest successes of the first term. Michael Barber was picked from the Education Department and appointed to run the Prime Minister’s Delivery Unit, a new body which would report to the Prime Minister on public service reform and implementation in the Departments about which the PM is most concerned. This is quite an important constitutional change – though not one dwelt on here – since it is the decisive organisational recognition of what has been a reality since the time of Mrs Thatcher, which is that the Prime Minister, far from being primus inter pares, is the de facto chief executive of the Government.

The initial signs are positive for the new approach to public service management. The new unit has by popular consent of the civil service, done more to call to account the labyrinthine processes and differing interests of the Whitehall machine. The technique has been simple, based on best practice in process and performance management in the public and private sectors. Hardly rocket science, but it has been a culture change for Government Departments. Permanent Secretaries who could previously make endless excuses to Ministers are now confronted by the Prime Minister with a traffic light system of performance indicators backed up by hard evidence as to what has caused the preponderance of red and amber lights, and people in the Delivery Unit who are as well informed as anyone as to why the pace of reform has been slower than expected. Proof, if proof is needed that this approach is working, is that the PMDU, an exercise which HM Treasury might have tried to sideline, has now moved into the Treasury creating a formidable alliance at the top.

The Tough Reform Issues

So much for the reform process. What about its content?  This is where we run into difficulty since the conditions described earlier, of the relatively mature nature of marketisation has forced the Government to look hard at the public services – posing difficult dilemmas, the two most important of which are probably the role of the market and the balance between central and local.

Markets and Public Services

Markets have application in three senses to the public services. First, in the application of markets to demand by allowing choice, second in the transmission mechanism between demand and supply through the use of vouchers or more sophisticated mechanisms such as needs-adjusted units of purchase and finally through contestability of supply.

The issue of consumer choice is greatly misunderstood. We know that in a free market those with more cash purchase more expensive goods. For this reason, where government has introduced choice in public services, it has generally done so without allowing an individual’s income to buy a better service.  Vouchers have rarely if ever been used. In the new NHS internal market patients will carry with them a right to purchase services which equates to their level of need. The problem with these approaches is that they seek to produce a more efficient allocation of resources, almost without exception in service areas where there is no spare capacity (since services are free at the point of use and have been sub-optimally cash constrained for a years).So the scope for improvement is limited even in an era of increasing resource. Mr Churchill’s words spring to mind. The Government needs to remember its own watchword when it comes to choice. If what works is what matters choice should be a means to an end rather than an end, always and everywhere, in itself. Moreover there is a danger in offering choice in a service area where supply is severely constrained. In such circumstances and except at the margins, there are only two options: administratively driven allocation which is likely to be highly inefficient and arbitrary; or via more market-based mechanisms which, even if price signals are disallowed, is likely to lead to selection by some proxy. It may in some areas be a case of waiting for supply to increase in order to allow choice to have a beneficial impact.

Higher education illustrates the need for choice to be used carefully. The pursuit of excellence should be the core goal of education. But it is equally important in  a system deigned to provide universal public services that the ability to excel is achieved neither by allowing richer parents to pay for the privilege, nor by using deeply socially constructed criteria such as raw exam results as the sole selection criteria. So to avoid further disadvantaging poorer students, the greater the emphasis on top-up fees for students, the larger and more effective the government’s support for scholarships needs to be.

There is a further aspect of choice in public services which is where citizens are allowed to purchase better (top-up) services, be that a TV and menu choice in hospital or other services whose primary purpose is to enhance the user experience.  This will cause major problems if one person’s access to greater resources than they ‘need’ to attain a standard outcome comes at the expense of others – for example by stretching the scarce management talent of public institutions into non-core business. It is also a problem if it starts to break down community and society cohesion – although we know that people can always step into the private market to achieve these things in any case. A lot of work is needed to bottom out these issues – despite the years of Conservative liberalisation, relatively little choice yet exists within the public services. But instinct says that using choice intelligently with equal resources for all within the quasi market will drive up standards for all in the medium term but that too much additional user fees (‘voluntary’ contributions at schools) cause problems. Moreover there is some evidence that choice- feeling that you are being treated as an individual- matters to service users and increases their satisfaction.

The issue of contestability is generally less fraught than that of consumer choice. Looking again at higher education and schools, it is clear that institutions at the cutting edge need to have the resources to enable them to stay there although there should be incentives to improve at every level. And that is the worry for providers. Is it the case that successful providers will increase their ‘market share’ leaving failing providers with inadequate resources, residualised customers, with the end result of failing to provide adequate services for the most needy.

This need not necessarily follow. If the performance management system is working, with early and correctly configured intervention, it ought in principle to be possible to turn around failing institutions before they reach this point.  Yes there will be marginal inequalities as a result of this strategy. But the inequalities in the current system are already considerable, so a degree of realism is required.

It is not so much that a measure of inequity is necessary to create conditions for greater efficiency but that the search itself will lead to different bodies moving at different rates. The real issue here is that as long as funding follows patients according to need, a hospital catering for a predominantly poor population should be able to deliver decent results. The same may not be true in education, where the social mix of students has a bearing on outcomes.

So much for principles. What does this mean in practice? The short answer is that no-one knows. There is very little empirical evidence upon which to draw, almost none at all drawn from experience in the UK. The results of the previous attempt to develop an internal market in the health service were not particularly encouraging. Many purchasers were severely constrained by producer and other interests. Only GP fund-holders made big changes in patterns of purchasing and were able to do so because of their small size relative to the hospital sector.

The issue of choice and contestability have moved to the centre of the political stage. In a politically important speech earlier this year, the Chancellor of the Exchequer Gordon Brown set out a fundamental critique of the application of market principles in certain areas of the public service and in particular the introduction of mechanisms which seek to mimic the price signal in mediating between supply and demand – so-called internal markets. The area he chose to examine was health.

He concluded thus:

Price signals don’t always work. ‘A year ago when the Government examined the funding of health care we concluded that, with uncertainty about risk, insurers often have poor information on which to base their risk assessment of the customer; that as a result of these uncertainties – and, with many citizens considered too high a risk, too expensive and therefore excluded – there are serious inefficiencies in private pricing and purchasing.’

The consumer is not sovereign. ‘Take the asymmetry of information between the consumer as patient – who may, for example, be unknowingly ill, poorly informed of available treatments, reliant on others to understand the diagnosis, uncertain about the effectiveness of different medical interventions and thus is not sovereign  –  and the producer. ‘With the consumer unable – as in a conventional market – to seek out the best product at the lowest price, and information gaps that cannot  – even over the long term – be satisfactorily bridged, the results of a market failure for the patient can be long-term, catastrophic and irreversible. So even if there are risks of state failure, there is a clear market failure.’

There is potential abuse of monopoly power. ‘Market failures do not only exist because of asymmetry of information and the irreversibility of decisions but because local emergency hospitals are — in large part — clusters of essential medical and surgical specialities and have characteristics that make them akin to natural monopolies.’

It is hard to write and enforce contracts for such non-standard services as health. ‘Conventionally, regulation copes best in situations where we are insisting on minimum standards. But when there is an explicit undertaking that medical treatment must be given at the highest level to every patient based on health need and not ability to pay, then one is led to the conclusion that, even if that task of market regulation could be practically accomplished, public provision is likely to achieve more at less cost to efficiency and without putting at risk the gains from the ethic of public service where, at its best, dedicated public servants put duty, obligation and service before profit or personal reward. So equality of access can best by guaranteed not just by public funding of health care but by public provision.’

Clearly this analysis is contestable. What makes it interesting is that it comes from the Chancellor of the Exchequer, the Government’s chief intellectual, and the man in charge of the Ministry which has driven market liberalisation for the last twenty five years. That it comes at the same time as an internal market is being developed and widespread choice being introduced is demonstrative of the difficulty the Government faces in taking market liberalisation further and deeper into the public services.

Devolution and decentralisaion

There is a broadly based consensus in Whitehall that the highly centralised mode of public services has its limitations. One thing that all current shades of modernising opinion have in common is that investment and reform in the public services should be devoted to the aim of developing and maintaining high national standards. Lurking behind the arguments between modernising camps is the fear that one too many wrong steps down the road of devolution or decentralisaion leads to voluntarism and a return to the Poor Law. Yet thirty years experience of the central intervention and bureaucracy of successive NHS and education reforms has not necessarily delivered the level playing field that people demand. So decentralisation must be part of the answer but with what form and focus?

This debate has been termed the new localism. This debate has at its heart a tension between those for whom public service decentralisation means moving the locus of power away from Ministers in London to local managers, and those for whom the issue is more fundamental – who argue for the creation of a polycentric political system.

Only now is there a serious debate in Britain as to whether the status quo is efficient. Proposals are afoot to create new devolved arrangements for hospitals which have proven management capacity – so called foundation hospitals. But the current reform proposals in the health sector do little to change political responsibility for the health service. Ministers remain in control with a series of targets, contracts and a system of performance management in place to provide accountability. Day to day responsibility certainly lies with the managers, but political authority derives only from the centre. These arrangements are mirrored in the approach taken in schools, social care, and increasingly in the police too.

Is this localism? We need to ask questions as to whether decentralisation down existing supply chains – in the form of silos managed from Whitehall – is radical enough. Can foundation hospitals, specialist schools and police basic command units collaborate effectively at local level to provide cross-cutting solutions to public service problems such as drug-related crime? Are Ministers likely to give local bodies the flexibility to make resource decisions – between ameliorative and preventative spending for example?
Probably not if past experience is anything to go by.

So the form of localism with which the Government is experimenting is not the localism of the current Italian reforms or those of Mitterrand’s France in the 1980s. It is a peculiarly British form of localism which will either still be driven from the centre – the most likely outcome – or it will place local services in the hands of managers who will be more or less unaccountable except for outcomes.

It is this last point which raises the biggest worries. For all its faults, local democracy has offers a means by which collective decisions regarding resource allocation can be made, new challenges can be responded to and innovation occur and so in a way which is open and transparent. It is a stable form of governance in which the locus of authority is clear. These new arrangements may provide innovation, however they are designed in a manner which seems less transparent and may well not be adaptable. When we experiment with foundation hospitals, partnerships and other localised institutional forms of service delivery that avoid the stale old formula of control through traditional representative democracy and bureaucracy are we at risk of throwing the baby out with the bath water? The governance structures of schools and hospitals are arguably lightweight for such large and diverse organisations. The more such bodies take policy and hence resource allocations responsibility, the more they risk becoming unfit for purpose.

So then is an area-based leadership role for local or regional government the answer? Government is still clearly wary to enter into the construction of the new local politics that would be needed for services to be devolved to local government. Are local politicians seen as inherently more incompetent, unconnected to their communities and in league with producer interests than their national counterparts?

These are questions which we hope to research over the coming months but at this stage there are compelling reasons for believing that the current reform agenda thought it offers exciting potential to reinvigorate the public sector, leaves unanswered important questions: accountability being the most important. For this reason it seems likely that the governance of public services will continue to be a contentious issue as the search for stable governance arrangements continues. So long as ultimate political accountability remains with central government, devolved management arrangements will rely more heavily on contractual forms of accountability. As the section above on the use of markets above argues, the marketisation process is now reaching deep into the public sector; in health if not elsewhere, the case is not as clear cut as hitherto that the market is capable of providing the solution.

Drawing the Threads Together

The first term of the Blair Government was, in public service terms, a period of experimentation which yielded the basis of a second term programme. But outside education, there was relatively little relatively little significant structural change to the public services – at least none that lasted beyond that Parliament.

The second term has heralded the emergence of a more radical agenda particularly in the health sector with the development of Foundation Hospitals and a new internal market. In education, choice and specialisation are to be used to drive reform in the secondary sector. And, there is the development of a new, more localist agenda with more devolution, either to the front line or even to local bodies. The role of the market and the boundary between state and market; the role of the centre versus that of the locality. These are the key areas of debate in British public policy today. As important  however is the continuity which exists over issues as central as the goal of public services. The Labour Government has, once again and 60 years on from the dawn of the British welfare state, confirmed the centrality of the post war notion of public services as a defining issue for national government.

Conservative Governments of the 1950s through Mrs Thatcher’s of the 1980s didn’t feel the same attachment to the welfare state as their Labour counterparts. The Thatcher Governments in particular made strenuous efforts to unpick the threads which together formed the welfare state. But it was weakened rather than overturned with less universality and an increased emphasis on user charges.

So the British welfare state has proved a remarkably durable set of ideas and institutions. It has evolved in line with its changing context and repeated drives to improve innovation and efficiency have enabled it to maintain some level of access to broadly decent services to most people in most circumstances. This in turn leads to its broad support among British people.

But the welfare state now operates in a period in which the customer is sovereign. In many aspects of daily life, choice and diversity of provision are the norm. Another expectation is for rising living standards and with them, improving services.   Herein lies a tricky issue for the Government. The public services are improving. But for a variety of reasons discussed earlier choice is not on offer in many areas of the public service and there is a concern that if the level of services is not improved or if people are not offered at least some choice, they will increasingly make the choice to meet their needs in the private sector. Since Governments rely on general taxation to meet the costs of the welfare state, the more people opt out of the system, the less defensible is the taxations which pays for it, and the more inevitable is a two tier system.

The challenge for the Government as it sees it, is to up the pace of reform so that standards rise for all with a growth in the degree of consumer power. But how? By managing the system even more efficiently using new and more sophisticated performance management systems. But the Government is also looking to reform the framework sof service aacountability which remains dominated by national governance and to use markets and other mechanisms for developing choice.

But do these changes amount to a radical shift in the British system?

It is too soon to tell. It may be that having started an informed debate about the role of the market in public services the Government may conclude it has been used inappropriately in some areas – such as the railways  – and needs to be used more extensively elsewhere. Taking Gordon Brown’s words literally, it is possible that he could signal a turn in policy towards the use of markets in public services only where there are clear grounds for believing they add value.  But what is the alternative? The post-war institutions of the welfare state are classical forms of bureaucracy based on models of public administration. If they are not to be replaced with markets, then what?

Likewise it remains to be seen whether the new localism of decentralisation and devolution is a passing phenomenon or the development of a new approach to public services.

One thing is certain. It is that the British state shows no signs or reducing the rate at which it innovates in public service reform.

di Mike Emmerich