There remain many other areas of public service delivery where outcomes can be sufficiently clearly specified to pay by results, but where this tool is currently not deployed. Offender management is one such example. Reoffending behaviour had been estimated to cost the taxpayer between £11bn and £15bn per year. But the complexities associated with joining up the necessary services to reduce reoffending are great. Outcome-based commissioning here has a clear potential to deliver innovative and cost-effective solutions. Reoffending will be reduced. The taxpayer saves substantial sums of money. And society has fewer active criminals.

When choice fails
Perhaps where it is most difficult for the government to get better value for money through market mechanisms is in areas that do not lend themselves to consumer choice and where good outcomes are simultaneously nebulous.

Take education. Citizens will have different views of the outcomes they want from schooling depending on their personal and political perspectives. Even where there is agreement, successful outcomes are difficult to define and even harder to measure. For example, ministers worry about the incentives created for schools by targets such as those regarding the proportion of pupils attaining five GCSE grades A* to C. Schools are effectively encouraged to focus their resources on pushing a student from a D to a C to get them over the A* to C line, rather than focusing on helping the best pupils excel or the worst improve. In short, commissioning on outcomes in environments where the desired outcome is hazy is problematic.

Choice is fraught with difficulty, too. Evidence from the UK about the impact of school choice on pupil outcomes is mixed. There is some evidence of polarisation of higher and lower-achieving students between schools in areas where school concentration is high and competition therefore strong.

In the end, the advantages of market mechanisms can, in some cases, be outweighed by other important considerations, such as equity. It may be that in these circumstances, incremental service quality improvement is the best we can hope for.

So in some cases the answer may be a model that is not very different from the traditional model. In other cases, smart commissioning can do the job. In other cases still, choice will be the solution. In the real world too, mixes of policies can be effective, which is why wise politicians and administrators avoid yes or no answers.

Interesting times
"May you live in interesting times," says the much-quoted Chinese proverb. The private sector already knows what a curse these interesting times can be. Similarly, in the public sector the process of change in general, and the advance of commissioning in particular, is going to make times interesting. It is not too much to hope, however, that the eventual outcome will be better services for users at less cost to taxpayers.

Lord Lipsey is Chairman and Ian Mulheirn is Director of the Social market Foundation.  They are guest editors of this issue of Ethos.