The Secretary of State for Justice began his Competition Strategy for Offender Services with a reminder that it is 20 years since HMP The Wolds became the first privately managed prison in both the UK and Europe. But while the notion of privately managed prisons is now largely accepted, broader competition is still not, according to Kenneth Clarke, “as widespread as I would have expected”.
The former Home Secretary no doubt feels things would have gone much faster had he stayed at the wheel throughout the intervening 20 years. Given his record as a reforming minister, I wouldn’t disagree. Certainly, his unequivocal statement of the case for competitive public service markets is a model of its kind. Clarke believes that competition will deliver better outcomes and better value, and that it should apply across existing offender services. He rejects the idea that competition should be used only when new services are being introduced, or where performance is poor. His policy is moving along in line with these principles, with nine more prisons going to tender this autumn.
Unfortunately, this kind of clarity is the exception rather than the rule. The recent history of competition policy with regards to the NHS (to take the most painful example) is so limited and volatile that it is a wonder any private provider stays in the market at all.
After 2001, the government under Tony Blair was happy to promote competition in the NHS, but only under extremely limited circumstances: the key stipulation was that new providers could only offer services ‘additional’ to those already offered by the NHS. In the meantime, leading members of the government argued against the principle of public service competition. In a major speech in 2003, then Chancellor Gordon Brown argued that while a market-based approach was fine for the private sector, consumers should not be put in charge of their own healthcare.
A number of leading companies then entered the market to run what became known as ‘independent sector treatment centres’, and achieved exceptionally high levels of patient satisfaction, as reported by Nicholas Timmins, Public Policy Editor of the Financial Times. However, they were granted only a tiny proportion of the market, providing just tens of thousands of operations, compared to the millions provided by the public sector. As such, they could not fight on equal terms when they came under attack from the opponents of competition who claimed to speak for the majority of the NHS.
Principle of competition
Unsurprisingly, the principle of competition itself came under attack, and the third term of the Labour government ended with a further policy change moving towards a situation whereby public sector providers alone were to be deemed ‘preferred providers’.
The coalition’s current health policy has seen similar vicissitudes. Although the government began with a policy in support of competition in the NHS, this was immediately called into question due to its caution over competition in other areas such as schooling. When the government came under pressure on NHS reform, it first ‘paused’ and then embarked on a precipitous retreat. This all ended with ministers arguing that competition could actually damage health services in some instances (despite the fact that, for example, only a third of hospitals in the universal German healthcare system are run by the public sector). The whole affair shook the confidence of investors so entirely, they felt their interest in the UK health sector as a potential opportunity was completely misplaced. Meanwhile, other public services argued that if the NHS could have a pause from efficiency and reform, then so could they.
Lessons for policy makers
There are a number of lessons as to how to create and sustain public sector markets. The first is consistency: policy decisions for one public service have implications for the
others. It gives confidence to the whole reform programme if the policies regarding each
service are based on the same ideas. As Sir Roger Douglas, the pro-reform then finance minister of New Zealand, wrote for the think tank Reform, consistent policy leads to confidence among stakeholders, which in turn builds credibility for governments. The whole becomes greater than the sum of its parts.
The second lesson is a focus on outcomes: if governments get bogged down in the
question of who should provide public services, the benefits of competition fall by the wayside. If governments can instead focus attention on outcomes, provision becomes a secondary question, and markets can operate properly. The coalition is open to new ideas which would combine different kinds of budgets, in order to bear on the deeper causes of better outcomes (what was once called ‘Total Place’ with the aim of delivering better services for less cost).
The third lesson is the importance of value for money: the point of competitive markets is that they deliver greater value than a monopoly can. Policy makers make an implausible case for competition if they claim that value has nothing to do with this debate.
The recent Open Public Services white paper, for example, makes a comprehensive case for change; but because it makes not a single mention of value for money, it seems distant from the practical and urgent challenges facing public service leaders.
In contrast, the Competition Strategy for Offender Services is straightforward about the need to achieve value, and the role of competition in this. ‘Value for money’ does not mean lower cost. It means understanding what a public service is really trying to achieve, and in what timescale, and then thinking freely about the best way to use our limited resources to achieve that: a much more difficult task.
Creative thinking
It is unsurprising that the current pressure on budgets in policing, local government and justice is forcing the most creative thinking about outsourcing. Ministers such as Theresa May, Nick Herbert and Eric Pickles have bravely and rightly argued that there is no single, simple link between resources and results. Ministers should therefore not define the size of public service providers (whether that be in terms of workforce or infrastructure). However, they do need to give managers permission to reduce that size if necessary, in order to create value. The ring fencing of the health budget has hindered progress, by giving the impression that the NHS should be protected from change, rather than allowed to embrace it.
It may be of some comfort to policy makers to consider that outsourcing markets do develop and do settle down, given time. Partners evolve from adversaries into genuine partners (so that, for example, commissioners no longer feel they need to ‘man mark’ their providers’ activity).
Markets acquire more players, resulting not only in lower margins (as we saw with the private finance initiative) but also the capacity to deal with failure (as is now happening with the care services provided by Southern Cross). There is tremendous private sector experience of outsourcing, on which the public sector can draw. The bravery needed to open up markets pays great dividends – as Ken Clarke would no doubt agree.
