The Government is paying the political price for the lack of open policymaking in its reforms to the NHSPosted: October 31, 2012
The NHS is facing significant financial pressure as a result of austerity with smaller increases in spending, which are not keeping pace with demand. This has meant that the NHS has to find £20 billion in efficiency savings by 2015. At the same time the health service is facing one of its biggest upheavals ever, which will result in a greater involvement of private companies in the health services. The reforms to the NHS have been introduced in the face of stiff opposition and in many ways represent the opposite to open policymaking – and the Government is now paying the political price.
The opposition to the Health and Social Care Bill was substantial and included the majority of the main health bodies, many of whom were not invited to attend the infamous Downing Street health summit to discuss the bill earlier in the year. Notable non-attendees included:
- British Medical Association
- Royal College of GPs
- Royal College of Midwives
- Royal College of Nursing
- Chartered Society of Physiotherapists
- Royal College of Pathologists
- Royal College of Radiologists
- Royal College of Psychiatrists
Opposition to the bill was widespread in the workforce of the health service. One survey found overwhelming opposition from hospital doctors, with 9 out of 10 professionals opposed to the bill. Strong opposition to the reforms was also apparent amongst the grassroots of the coalition parties. ConservativeHome came out in opposition to the reforms, arguing that it could cost the Conservatives the next election and would distract from important reforms to welfare and education, whilst Liberal Democrat party members opposed the reforms by 2 to 1.
Much of the opposition about the reforms has centred on how complex and fragmented the new health system will be. Clare Gerada, Chair of the Royal College of GPs, has argued that the move to a market-driven health care system will result in a culture of ‘my disease is more important than your disease’, with GPs at the centre of this trying to balance these competing voices. She has flagged her concerns about the lack of experience of GPs in managing relationships with the charities and lobbyists they will face when commissioning in future.
Andy Burnham, the Shadow Health Secretary, agrees on the point of fragmentation of health care, arguing that “my answer is simple: markets deliver fragmentation; the future demands integration.” He has called for a single system for health and social care which addresses the physical, mental and social needs of the nation. He has argued that central government should decide what health services should be delivered and local government how.
Despite the overwhelming opposition, ministers have been happy to write off the protests as ‘business as usual’ when it comes to NHS reform. Simon Burns, the then Health Minister, stated that the opposition from these ‘vested interests’ was to be expected and scare stories about ‘creeping privatization’ are par for the course. Andrew Lansley, the former Health Secretary and architect of the reforms, argued that the Royal College of Nursing only opposed the reforms because of pension changes, accusing them of being ‘a vested interest indulging in trade union -like behaviour’. The appointment of Jeremy Hunt as the new Health Secretary does not inspire hope about a change of policy course, given that he is seen as a proponent of greater involvement of the private sector in a market-driven health service.
The reforms have now received Royal Assent and the Government seems committed to accelerating the involvement of the private sector in the NHS. Research by the Labour Party using freedom of information requests to NHS primary care trusts found that contracts for almost 400 NHS services worth a quarter of billion pounds were signed in early October, representing the biggest act of privatization ever seen in the NHS. The research found that in a quarter of cases, the primary care trust had not been open about its intention to outsource, resulting in a considerable amount of privatisation by stealth.
The biggest privatisations so far have been in community services – those healthcare services offered outside of hospitals including musculoskeletal services for back pain, adult hearing services in the community, wheelchair services for children and primary care psychological therapies for adults. Children’s health care in Devon is now delivered by Virgin Care, as are GP services in Northampton and sexual health services in Teeside. This week’s Channel 4 Dispatches programme entitled ‘Getting Rich on the NHS’ uncovered poor quality services delivered by Virgin Care and concerns from local residents that their local services have been privatised often with little or no involvement from the community in this decision.
Paul Corrigan, the former Labour health adviser, argued in September that outsourcing of services should go further. He proposed that the private sector should be allowed a greater role in the NHS to ‘save’ failing hospitals. This argument is ironic given that this week it became apparent that the flagship outsourcing of Hinchingbrooke Hospital in Cambridgeshire to the Circle Partnership is not delivering on the initial expectations. The hospital, in private hands, has racked up losses of £4.1 million in the first six months of the contract – £2 million more than was expected. Given that the private sector was involved to save the hospital from financial ruin, the experience so far does not bode well.
This closed approach to policymaking and reform is having a real and significant political impact on the Government. A recent survey by IpsosMORI on which party has the best policies on healthcare found that the Conservative’s ratings are at pre-Cameron levels. Only 16% of voters believe that the Conservatives have the best policies on healthcare and they seem to have lost the battle in convincing the public that the NHS is safe in Tory hands. A further recent poll by IpsosMORI points to a re-toxification of the Conservative brand, with a sharp increase in people who don’t like the Tories since they came into government, which the reforms to the NHS are clearly a part of. The Government is paying the political price for the lack of open policymaking in its reforms to the NHS.
Education Secretary Michael Gove has unveiled “rigorous selection” tests for trainee teachers in a move he claims will improve the status of the profession and raise standards in the classroom. It’s a pity his own approach to policymaking doesn’t live up to the same standards he’s asking of teachers.
Announcing the policy, Michael Gove said: “The evidence from around the world is clear – rigorous selection of trainee teachers is key to raising the quality and standing of the teaching profession.” Despite an apparent inconsistency with previous announcements – in July Gove declared that, like their private counterparts and free schools, academies in England could employ people who are not working towards qualified teacher status (QTS) – at least this policy was based on evidence and developed by a review group of headteachers and education experts. For many of his other reforms, Michael Gove seems to make policy in secret, ignore what teachers and other experts think, and go against the best available evidence.
- Provoking two members of the expert panel recruited to redraft the English primary curriculum to resign; one of them, Andrew Pollard, criticized Gove’s plans for undermining teachers’ professional judgment;
- Repeatedly overruling another expert panel established to advise on selling off school playing fields;
- According to the Deputy Prime Minister, not even telling Number 10 of his plans to scrap GCSEs in favour of the so-called English baccalaureate (EBacc), which less than one in four teachers support, which has been developed without any meaningful input from teachers, parents or young people, and which is unlikely to be properly piloted before being introduced;
- Ignoring that, alongside its academic rigour, the main characteristic of the International Baccalaureate is its inclusion of practical and vocational elements – much like the GCSE dismissed by Gove as ‘dumbed down’;
- Dismissing concerns that a stronger emphasis on exams as opposed to coursework could exclude young people with learning difficulties such as dyslexia;
- Extending academies despite government data showing that local authority schools with a similar pupil intake perform better, without any evaluation of the possible impact on the already highly segregated education system, further divorcing schools from local democratic control and effectively centralising a major tranche of government spending with minimum parliamentary accountability;
- Scrapping the Building Schools of the Future programme because there is ‘no evidence’ that it helps to improve attainment – even though his department knows there is;
- Accepting the lack of transparency of academies and free schools, and awarding half a million pounds of public money to the Free Schools Network (which is not subject to freedom of information requests) to promote his £600 million untested flagship project;
- Abolishing the Educational Maintenance Allowance despite independent evaluations finding that it significantly increased staying-on rates and attainment for young people in education;
- Using secret emails to bypass even his own departmental officials (using the alias ‘Mrs Blurt’);
- Turning a blind eye to his department’s generally poor record on freedom of information and lack of transparency on who actually runs schools and what their status is.
Michael Gove’s colleagues have committed the Government to open policy making as well as open government. The Civil Service Reform White Paper published in June 2012 contained a commitment announced that: “Open policy making will become the default. Whitehall does not have a monopoly on policy making expertise. We will establish a clear model of open policy making.” Our project with The Democratic Society is currently examining how open policy making can be made a reality.
The Government has also promoted the evidence agenda, and is considering the case for new institutions that would perform an advisory role similar to the role that NICE plays for the NHS and the Early Intervention Foundation does for early years, to help ensure commissioners in central or local government do not waste time and money on programmes that are unlikely to be effective.
No-one seems to have told Michael Gove about either of these initiatives. No wonder teachers are starting to make their own education policy.
The West Coast mainline franchising fiasco shows that the current approach to outsourcing public services has serious flaws that need to be addressed – the much too complicated and secretive nature of outsourcing is the problem, rather than the people handling the process.
Last week Patrick McLoughlin, the new Transport Secretary, cancelled the West Coast Mainline franchise deal. The Department for Transport has been on a damage limitation exercise ever since, with McLoughlin blaming the fiasco on officials at the DfT “because of deeply regrettable and completely unacceptable mistakes made by my department in the way it managed the process”. Philip Rutnam, the Permanent Secretary at DfT, has also joined in telling staff that they must accept that the reversal was the fault of officials. Meanwhile, Kate Mingay, one of the three officials suspended by DfT (an ex-Goldman Sachs employee parachuted into the civil service because of her private sector expertise) has hit out at the way her role in the procurement has been portrayed by the Department.
Blaming officials is an easy way to distract from the substantive story: whether the current approach to franchising used by the DfT is fundamentally flawed. The Department argues that mistakes were made from the way the level of risk in the bids was evaluated due to human error – in particular the way in which inflation and passenger numbers were taken into account, and how much money bidders were then asked to guarantee as a result. But the assumptions about inflation and passenger numbers are dependent on the state of the UK and global economy and the ability of the future franchisee to bring in new customers. Colin Cram, writing for the Public Leaders Network, argues that: “…this enters the realms of guesswork and slight changes in assumptions can lead to different outcomes for contracts that may be for only three or four years, let alone 13.” If the Government’s own Office for Budget Responsibility continues to get its predictions on economic growth significantly wrong, how can we expect the assumptions made in the rail franchising process to be watertight?
This is not the first time that assumptions about economic growth and customer numbers has gone wrong, for example the previous experiences with the East Coast mainline or in the commissioning of welfare to work services. The Work Programme was designed for a far more positive economic climate than we now find ourselves in. DWP’s estimates of the number of customers in receipt of Employment Support Allowance have proven to be wholly unrealistic, with serious consequences for the business models of prime contractors and charities.
The risks associated with complex procurement processes such as the rail franchise are compounded by the secretive nature by which they are often conducted, behind a veil of ‘commercial in confidence’. As we’ve argued before, this ‘closed shop’ approach leads to poor decisions and a profound lack of public engagement – until something goes horribly wrong. The complexity involved also means a significant diversion of resources into the process of franchising rather than actual delivery of services. Franchising might work however if the process was more transparent and the assumptions about passenger numbers (and any other projections) were open to rigorous scrutiny by others outside of the process – so why isn’t it?
The West Coast fiasco has much wider implications that the policy establishment probably doesn’t want the public to consider. Cheryl Gillan, the former Conservative Welsh Secretary, has argued that a root and branch re-examination of the High Speed 2 rail project is needed if the public is to have trust in such a significant investment of public resources. Instead, plans for competition and outsourcing are being accelerated in prisons, probation services and health. In this context, the secretive, complex and bureaucratic nature of outsourcing needs to be addressed as a matter of urgency. If the public is going to be on board, then a public debate is needed on the merits and risks of delivering services in this way – which surely is what the Government’s open policy should be all about.
Fundamentally, the political establishment doesn’t engage the public in a debate about the merits of rail franchising because the public doesn’t support the idea. This ‘outsourcing by stealth’ approach wins neither hearts nor minds. Various surveys continue to show a strong majority of public opinion in favour of re-nationalising the railways – one recent survey found that 70% of respondents supported such a move. Impossible? New Zealand provides an example of such a policy put into action. Its rail and ferry network was privatised in the 1990s and asset-stripped and run down by an Australian outfit. It re-nationalised both in 2009. Michael Cullen, the then Finance Minister said privatization had “been a painful lesson for New Zealand”. Kiwi Rail in public hands has been able to invest in its long-term future whilst also generating significant financial and economic benefits for taxpayers in New Zealand.
Here, despite the strong public preference for a nationalised rail network, none of the three main political parties are committed to such a policy. At last week’s Labour Party conference, Ed Miliband and Maria Eagle made positive noises in this direction but no firm commitments. So we are left with an unpopular, risk-laden, fragmented rail network – and the policy establishment searching around for scapegoats when they should be looking somewhat closer to home.
Open policy requires open research – the CBI’s report on outsourcing public services doesn’t meet this standardPosted: October 1, 2012
Last week the CBI published research that claimed that government could save billions by outsourcing more public services to private business. Ironically for a report titled ‘Open Access’, the main problem with the report is not its argument but its lack of transparency. For such an important issue as the future of public services and who delivers them, we aren’t given enough opportunities to judge for ourselves whether the report’s claims stand up to scrutiny. Open policy requires a much greater openness about the data and analysis used to support such conclusions – otherwise it’s just a press release.
The CBI’s Open Access report claims that “opening up public service delivery to independent providers” (that is, outsourcing public services) could achieve savings of £22.6 billion “or more”. For such a big claim, the research has a fairly simple methodology. The researchers (Oxford Economics) looked at 20 different service areas to determine the average cost savings from greater efficiency and productivity from outsourcing (a figure of at least 11 per cent, within a range of 10-20 per cent); applying the same calculations across the estimated £278 billion of public services which the CBI believes could be fully ‘opened up’ produces potential savings from outsourcing of £22.6 billion.
Trade unions have criticised the report for a ‘lack of evidence’ (for example, Unison) and for not taking into account any of the transactional costs associated with outsourcing including procurement, tendering and contract management, let alone when private providers fail to deliver. The Local Government Association called the report’s calculations “ludicrous” for effectively double-counting savings from services which have already been outsourced. Other commentators have identified specific flaws in the research (for example, for fundamentally misunderstanding who already provides what in the housing sector).
Beyond this, it’s also important to note that efficiency is not the same as effectiveness, which is to say, cheaper does not always represent real value for money. This is especially the case when it comes to public services where there are often broader considerations to be made regarding ‘public value‘ – encompassing not only benefit to the individual service users but also to communities and society as a whole.
For example, it’s unfortunate that the CBI’s report promotes the Work Programme as a model of good practice, both because of the identified risk of fraud in the programme, but also because of the significant concerns about the programme’s impact on charities. As the NCVO has argued: “The Work Programme continues to pose major issues for charities particularly around managing cash flow and taking on risk and very large contracts prevent smaller and more specialist organisations from playing their full part. More seriously it’s clear that the payment structures used continue to threaten the viability of contracts.” However ‘efficiently’ it achieves its objectives, if a programme undermines the diversity of provision including from smaller charities, can it really be regarded as generating better ‘value’ for society?
Further, while the report recognises the widely shared public concerns about outsourcing public services, it also effectively makes these problems that government needs to solve – as if government is to blame for them: “The Government must take important steps to ensure the public retains confidence in the opening up of public services by becoming a more effective market manager and ensuring that the best, most effective providers from all sectors have the opportunity to manage our public services. Providers too must work with the government to address the public’s concerns about value for money, accountability and service failure.” Certainly government has the ultimate responsibility to ensure that public money is spent responsibly, for example that providers are properly audited. But if they are to be given millions or billions of pounds of public money, private providers also need to do more to prove their worth and reliability, such that they can be trusted to provide public services (something not helped by last week’s further revelations about the G4S Olympics debacle). Of course, one way to avoid such problems would be not to outsource more public services – but this is a view that the CBI regards as “dogmatic”.
However, the main problem with the CBI’s report is that we can’t properly determine the accuracy or veracity of the research for ourselves. It seems particularly questionable to assume that the same level of savings can be achieved uniformly across different areas of public services, and yet to quote from the research: “If an average 11% of productivity improvements is achievable across just £24.5bn out of the £666bn annual public sector expenditure on services in the UK, then similar levels of savings must be possible: not just in the un-open proportion of the markets researched but in the unopened proportion of the estimated £278bn of public services spending which could practicably be more opened up to independent provision.” [emphasis added]
Unfortunately, it’s not possible for us to investigate this much further. The problem is the methodology – or rather its lack of openness. As acknowledged in the report: “There is as yet little published information on the scope and performance of services delivered by independent providers.” The average saving figure used in the report is based on “existing research, and information from public bodies and providers” – including crucially from a survey of CBI members. The CBI has produced a nicely presented summary of the analysis by Oxford Economics; the actual analysis (which is a bit more difficult to find) is pretty opaque, especially when it comes to this survey of CBI members. One phrase that keeps popping up in the original Oxford Economics analysis is: “The degree of potential cost savings that could be achieved through outsourcing these services is estimated from responses to the CBI member survey.” In other words, the most critical figure in the research, the basis of the argument made in the report, comes from what the CBI’s own members claim – a claim we are unable to judge for ourselves because we are provided with no further information about it (for example, how many of the CBI’s members responded, what size were these providers, what specific types of services they provide, etc). For an argument in favour of open public services, this represents a remarkably closed approach to evidence.
As the CBI’s report notes, we are in the middle of the biggest wave of government outsourcing since the 1980s, with more than £4 billion in tenders being negotiated in 2012 alone in services ranging from prisons and police to defence and health. Given this, we need much more robust and reliable research about the benefits and the problems that outsourcing more public services would produce – before we outsource these services (perhaps irreversibly). The research commissioned by the CBI may or may not be a useful contribution to this analysis; the problem is that because of the report’s own lack of transparency, it’s very difficult for us to know.
In posts over the past few weeks we’ve looked at the Government’s ‘open public services’ agenda, in particular the outsourcing of public services, and how this threatens to undermine another Government initiative, for ‘open policy making.’ The Prime Minister has reshuffled his Government so that it is focused more on “delivery” for the rest of this parliament – but at the cost of undermining the open public debate that it should be having on the future of our public services.
The open public services agenda involves outsourcing public services to the private sector (and to a lesser extent the voluntary sector). Unprecedented levels of outsourcing are taking place across prisons, probation services, policing, schools, welfare to work and the health service. Virgin Care now run children’s health services in Devon for instance. The Economist magazine has predicted that £58 billion of public services will be outsourced by 2015 as part of this agenda, on top of the £82 billion already outsourced (according to Oxford Economics). And yet – as illustrated recently by the failure of G4S and increasing concerns over outsourcing police services – the Government doesn’t seem to want a public debate over its plans, despite its apparent commitment to open policymaking. Why not, if open public services are as popular as it claims?
The recent furore over the role of G4S and its £283 million contract to provide security staff to the Olympics has placed the outsourcing agenda firmly in the spotlight. G4S were forced to admit just weeks before the start of the Olympics that they would only be able to provide 7,800 of the required 10,400 guards, which resulted in the army being called in to the fill the gap. G4S has claimed that it will take a £50 million hit from their failure to meet the requirements of the contract – but we don’t know yet what its failure cost the taxpayer. Nick Buckles, G4S Chief Executive, is due to appear again before the Home Affairs Select Committee in the next couple of weeks as part of its inquiry into the scandal.
Philip Hammond admitted in an interview with the Independent that in light of the experience of G4S that we can’t always rely on the private sector. In particular he questioned the ‘lean model’ that G4S and other private providers such as Serco use, which has been adapted from manufacturing. Parts of the outsourcing industry uses a ‘just in time’ approach, which in the case of G4S meant that they planned to recruit, train and manage a new workforce that they would build from scratch weeks before the start of the Games. G4S didn’t bring existing capacity to the Olympics contract, rather they ‘sold’ their ability to recruit, train and manage a large workforce in an efficient way in a short space of time. The just in time approach is well established in the manufacturing sector, but there are legitimate questions about its suitability for parts of outsourced public services, something we will look at in a subsequent post.
Hammond and other ministers have acknowledged, at least when pressed in interviews, that the G4S debacle should make us pause and consider the limits of outsourcing, but these statements have sounded like deflections rather than the start of a genuine and transparent debate about the role of outsourcing in public services. It seems that this debate has already been concluded – just without the public. Theresa May confirmed last week that police forces should press head with their plans to outsource more of their services into the hands of the private sector. Three police forces – in Bedfordshire, Cambridgeshire and Hertfordshire – are considering outsourcing more than 1,000 jobs in IT and human resources to G4S. May also ruled out a review of the £1billion contracts that G4S has with the public sector to run prisons, welfare to work and tagging of criminals arguing that the Olympics contract was ‘rather different’ from G4S’s ‘day in, day out’ public sector work.
This reluctance to engage in a public debate is also having a curious knock-on effect on some of the Government’s other initiatives to make public services more accountable. For example, most people in England and Wales will have the opportunity to go to the polls in November to elect a local Police and Crime Commissioner. The Economist reported last week that less than a fifth of voters are aware that there are elections for these roles or what the job of the commissioner involves. It is not surprising therefore to hear that the Electoral Reform Society’s prediction that only 18.5% of the electorate will actually make the journey to the polling station to vote, less than half the average turnout for local elections.
The quality of candidates for these posts has been criticized whilst the Government has also refused to fund an election address for candidates arguing that the internet, local and social media can fill the gap. The lack of public debate around these elections is a concern given the expected remit of these elected officials – Police and Crime Commissioners are clearly an idea that hasn’t caught on.
However, in the context of cuts and outsourcing, in many respects this lack of public engagement is in the Government’s interest – the main topics for debate will inevitably be the 20% cuts to policing budgets by 2015 and outsourcing more police services. Both of these are debates the Government would like to avoid given that the public remains unconvinced that cuts and outsourcing will lead to a more efficient and better quality police service, a view that is shared by many in the police force. Indeed, the outsourcing of public services has never been popular with the public. According to a recent YouGov survey for the Fabian Society, nearly two-thirds of people think that ‘services like health and education should not be run as businesses.’
Last week’s Cabinet reshuffle points to a ramping up of the open public services agenda with key proponents of this in Government bring promoted. The elevation of Chris Grayling to head up the Justice Ministry is a clear signal of the Government’s intention to expand the Work Programme model of outsourcing to revamp the much heralded ‘rehabilitation revolution’, whilst the promotion of Jeremy Hunt to Health Secretary points to an expansion of the private sector in the NHS. It seems like, whatever its promotion of open policy-making, there are some policy issues on which the Government is less interested in having an open debate.
In posts over the past few weeks we’ve looked at the Government’s ‘open public services’ agenda, in particular the outsourcing of public services, and how this threatens to undermine another Government initiative, for ‘open policy making.’ Open policy also involves outsourcing policy – but this risks repeating some of the problems with outsourcing public services, especially reducing accountability.
We like open policy. We think that policy development has been too closed, to a too narrow set of participants, for too long. We agree with the Government that Whitehall hasn’t got a monopoly on policy expertise, and we support its recent announcement of a “presumption in favour of open policy making, with policy developed on the basis of the widest possible engagement with external experts and those who will have the task of delivering the policy.” In earlier posts we’ve suggested ways in which Government can make open policy a reality.
However, we’re less sure about that part of the plan to “Pilot contestable policy making by establishing a centrally-held match fund which can be used by Ministers to commission external policy development (for example, by academics and think tanks).” If this marks a significant change in how policy is developed (which we have to presume it does), then like outsourcing in public services it raises important issues of transparency, accountability and trust. Just as outsourcing has in some instances undermined the publicness of public services (for example, their accountability to the public), so it could threaten the publicness of public policy by undermining the extent to which it is made in the public interest.
Given our recent focus here on outsourcing, consider this: policy on public services could now be outsourced to organisations that favour more outsourcing of public services. This is more than likely given that so many think tanks are part of the ‘Whitehall consensus‘ in favour of outsourcing. Will think tanks that consistently argue for more outsourcing be commissioned to develop policy that leads to more outsourcing – or will they be automatically disqualified from conducting such work? How about think tanks whose sources of funding are less than transparent – wouldn’t it undermine trust in policy if they were commissioned by government without the public knowing what other interests might influence their research? How would this increase the accountability and transparency of policy-making, at a time when the public’s faith in political institutions is in such marked decline?
We noted in the previous post how some think tanks have argued that lobbies that benefit from increases in government spending should be ignored because of their (self-) interest. The same think tanks have also argued that government should stop funding charities to lobby it for more public spending on their ‘pet issues.’ Logically, the same should hold true for open policy – that government should avoid the risk of underwriting the mutually beneficial relationship between outsourcing companies and those think tanks that take sponsorship from them.
In apparent recognition of these issues, the Government’s plan includes the commitment to “clear contracts – setting out criteria to ensure that the policy being developed is done so in the best public interest, and that it does not favour any bias of the provider.” This appears to accept that some providers will be biased, but that a contract will ensure that this bias doesn’t inform their work – something which is either surely naive or disingenuous. If government wants to ‘build on evidence of what works’ in social policy (another of the themes in its reform plan), wouldn’t it better to commission researchers who don’t have such a tendency to bias, and who instead have a track record of neutral, evidence-based analysis?
Moreover, how does commissioning Westminster and Whitehall-centric think tanks – which are by definition already insiders – help to bring more ‘external expertise’ to policy? If government wants to hear ideas from think tanks, then it already can, and without spending a single additional penny of public money (an efficiency of which Francis Maude would surely approve). For the moment however, this part of the open policy agenda risks policy being developed by the same old insiders, only with less transparency and accountability than it is at present.
It is perhaps indicative then that the first commission under open policy risks further politicising policy development, and that it is being conducted in the traditional closed way. The Cabinet Office is commissioning research into changing the balance between the permanent (and in principle, neutral) civil service and introducing a larger politically appointed element, as in France and the US. Likely candidates for the research have been reported to include usual suspects such as Reform and the Institute for Government, but both have now apparently turned down the chance to bid for the work due to a desire to maintain their “independence.” To some, this might demonstrate that the system is self-correcting – that think tanks recognise the need to maintain their integrity as well – but it also suggests that the concerns expressed here are real ones.
The problem isn’t so much that government has a “virtual monopoly on policy development” (to quote from the Government’s civil service reform plan) – in one sense that’s the definition of government, and anyway it isn’t true. Think tanks, academics, charities and campaigners all develop and propose new policy, and in this sense there’s more than enough ‘contestability’ in policymaking already. The problem is conscious or unconscious collusion among insiders about contentious aspects of public policy without the public also being allowed to participate.
What’s really missing, to quote from the Government’s own proposals, is how to “enable policy to reflect the real-world experiences of citizens and harness public engagement with the policy making process.” That’s not something you’re going to get from Reform or the Institute for Government, or in all likelihood whatever organisation does get commissioned by the Government. It requires a different way of thinking about policy, who can participate in it, and how – something we’re considering in our ‘manifesto’ project, and we’d welcome your thoughts.
In posts over the past few weeks, we’ve looked at the issues of accountability, transparency and reliability raised by the Government’s ‘open public services’ agenda, in particular its plans to outsource more public services. We’ve focused especially on how outsourcing threatens to undermine another recently announced Government initiative, that for ‘open policy making.’ In the absence of reliable and rigorous evidence for the benefits of outsourcing, why have so many think tanks continued to push outsourcing?
Some of the loudest cheerleaders for outsourcing have been in think tanks. In addition to conservative parts of the media, many think tanks have played an important role in promoting the ‘Whitehall consensus’ in favour of outsourcing – whatever the reality of outsourcing at the frontline for the people who use public services and the people who provide them.
The explanation for some think tanks ignoring the public and public service workers is that often think tanks consider them to be part of the problem. Starting in the 1970s, a group of commentators began to characterise organised frontline workers and service users as the underlying cause of the country’s problems. These commentators were often found in, or heavily informed, by right-wing think tanks such as the Institute of Economic Affairs and the Centre for Policy Studies.
Their argument was that public sector workers and ‘interest groups’ (including people who benefit from services) in effect hold politicians to ransom until governments pay them off by spending more on services. This only serves to make these interests stronger and so turns the “collectivist ratchet” inexorably away from a free society and towards the big state. As a result, not listening to frontline workers (and ‘self-interested’ service users) became a matter of political principle – the only route to genuine reform in the public interest.
Another implication of this argument was that if the state couldn’t be slashed overnight (because interests in favour of the state were too strong), then private companies should at least be given a much greater role in delivering public services. This would produce more efficient and effective services. It would also reduce the power of public sector unions – and possibly pave the way for privatisation.
A related argument often made by some think tanks has been that public services are over-regulated – over-inspected, over-measured, and over-directed. Combined with outsourcing, in practice this means that private companies taking over the running of public services should expect less close inspection than used to be the case with the public bodies that previously ran services (although the same commentators are largely quiet when it comes to addressing failures of ‘light-touch inspection’ such as Winterbourne View).
It’s not surprising that right-wing think tanks pushed this argument – it’s their job to promote their particular ideology and they do it unashamedly. What’s more surprising is that supposedly progressive left-of-centre organisations have also promoted the Whitehall consensus in favour of outsourcing and less regulation – or as they prefer to put it, for more ‘diversified provision’ and greater ‘innovation’. The question is why – and why they have often seemed so uninterested in asking the more fundamental question as to whether outsourcing improves the quality or efficiency of public services, especially from the point of view of the people who use and pay for these services.
Think tanks often present themselves as fiercely independent – as ‘intellectual outriders’ that are prepared to ‘think the unthinkable’. In reality, think tanks also need to pay the bills, and outsourcing interests often have deep pockets. This is the time of year when think tanks promote their party conference events. Sponsors of think tank events at last year’s party conferences with a direct interest in outsourcing included PwC, Vertex, Pearson, Careers Development Group, the Association of Employment and Learning Providers, Sodexo, Avanta, Manpower, Working Links, Deloitte, KPMG, and G4S.
Most of the time, government feigns ignorance regarding the potential influence of these interests. Last week however, the Department of Health dismissed a paper written by Conservative MP John Redwood for the Centre for Policy Studies as “misleading and inaccurate” in part because of “influence” (unspecified) by Partnership Assurance – “an insurance provider known to be critical of a cap on care costs” (in his paper, Redwood had called on the Government to abandon proposals by the economist Andrew Dilnot to cap the costs of elderly social care).
It’s ironic of course that the Government dismissed the Centre for Policy Studies’ argument for the same reason that the CPS has consistently used for dismissing the views of public sector workers and service users – that of narrow ‘self-interest’ at the expense of genuine public interest. Applying the same logic would mean that government should ignore the arguments made by many think tanks when it comes to outsourcing public services. Should it – and will it?
Rail privatisation offers a warning from history for the Government’s ‘open public services’ agenda to outsource more public services. In our previous post we suggested that rail privatisation has never been wholly accepted because the Major Government overlooked the essential ‘publicness’ of the railways. In this post we identify five specific damaging consequences of rail privatisation that should cause the current Government to consider much more carefully how it approaches outsourcing or risk repeating the same mistakes in other public services.
1. Expectations of greater efficiency from privatisation have not been realized
One of the principal expectations from privatisation was that the railways could be delivered more efficiently in the private sector because of the motive to generate profits. British Rail was already pretty lean following a cost cutting exercise in the 1980s, and in fact the opposite has occurred. The unit cost of the privatised rail industry is significantly higher than that of British Rail because economies of scale have been lost and the complexity of the industry has thrown up new costs. The public subsidy to the industry is considerably higher than it ever was for British Rail.
Chris Grayling when he was Shadow Transport Minister admitted that the way privatisation was organised “…helped push up the cost of running the railways – and hence fares – and is now slowing decisions about capacity improvements. Too many people and organisations are now involved in getting things done – so nothing happens. As a result, the industry lacks clarity about who is in charge and accountable for decisions.”
2. The rail industry has coalesced around a small group of large private sector providers who are (almost) too big to fail
The rail industry after privatisation was highly fragmented. This fragmentation has now been reduced but has resulted in a small group of private sector companies who now dominate the market. The complexity and scale of these contracts has skewed the market in favour of these large private providers who have the scale and deep coffers to absorb the risks associated with running a franchise.
Nonetheless, the narrowing of the market around this small group of providers is a risk. On three occasions, the state has had to step in and pick up the pieces because a company has pulled out of a franchise. The exit of Virgin Trains from the rail industry has further reduced the options available to government. Two of the recent new entrants to the rail market have been the national train operators of the Netherlands and Germany who have been accused of profiteering to subsidize their domestic operations. Where will the new train operators come from if another company fails or is judged to offer a poor quality service?
3. The private sector has profiteered from parts of the rail industry
To many people, private profit shouldn’t have a place in an industry that receives a £4 billion subsidy from the public every year and where consumer choice is highly limited. But there’s profit and then there’s profiteering. One of the publicly neglected aspects of rail privatisation is that running a Rolling Stock Leasing Company (or ROSCO) is a very lucrative business. Three were created as part of the break-up of British Rail and all are now owned by a combination of banks and private equity. ROSCOs have found older rolling stock to be especially commercially attractive as they can continue to generate revenue for stock even after the construction costs would have been written off by British Rail. This has also helped to inflate the fares paid by customers.
The privatization of ROSCOs is another example of the public sector selling assets at below their fair market value. The National Audit Office in a 1998 report stated that the UK Government had not realised fair market value for the sale of these assets. Eversholts Leasing later HSBC Rail was sold for £518 million in February 1996 but a year later the business was sold on for £726 million, a gain of some 40 per cent over the sale price by the Department for Transport.
More generally, train operating companies own virtually nothing, hiring most of the assets required from Railtrack and ROSCOs whilst also contracting out areas such as onboard catering and cleaning services. For this reason, Baroness Vadera, when she was a special adviser to Gordon Brown as Chancellor of the Exchequer, described the privatized passenger train operating companies as ‘thinly-capitalised equity profiteers of the worst kind’.
4. Privatisation led to a loss of skills and flexibility
The Hatfield disaster in October 2000 – caused by a broken rail as a result of faulty maintenance procedures – illustrated the loss of skills and flexibility from the rail industry as a result of privatisation. Railtrack, which had responsibility for rail infrastructure, had outsourced almost all of the maintenance and renewal of track. Outsourcing maintenance and renewal both removed flexibility (unless it was already included in a contract) and led to a drain of skills and knowhow from Railtrack. In the aftermath of the disaster, thousands of speed restrictions were imposed unnecessarily across the network because Railtrack did not have the expertise to know whether other parts of the track were also at risk of an immediate tragic failure. Railtrack was a disaster waiting to happen according to Christian Wolmar in his book On the Wrong Line: how ideology and incompetence wrecked Britain’s railways; the system it operated in was brittle and not designed to cope with sudden challenges. Hatfield sealed its demise and replacement by Network Rail, which has taken a different approach to maintenance by bringing some of this in-house again.
5. The views of users and frontline staff were sidelined
British Rail argued that if it was to be privatised then the rail network should be privatised as one entity. Instead the Treasury, under the influence of the Adam Smith Institute, advocated for the creation of 25 passenger railways franchises as a way of maximizing revenue. The effect of this was to create a complicated system with over 100 different companies delivering bits of the rail system, which made it difficult for the views of users and practitioners to be heard. Passengers were unclear on who was responsible for what or who to direct their questions or complaints to. Public accountability suffered as a result.
The views of passengers have also been neglected in franchise decisions. Passenger satisfaction targets in franchise agreements don’t carry sufficient clout. According to Passenger Focus, only 42 per cent of rail passengers are satisfied with value for money, yet increases in rail fares have continued this year despite the concerns raised by passengers. Given the amount of public money invested in the rail industry last year, as well as the cost of fares, surely the views of passengers should be at the forefront of rail policy?
The nationally-owned British Rail was far from perfect, but most people think that rail privatisation has been a relative disaster for the reasons discussed here. Rail privatisation represents a warning from history for a Government that seems intent on outsourcing more of our public services – will it learn the lessons?
It’s been almost twenty years since John Major’s Government privatised British Rail, but unlike some other sell-offs the issue of who owns and runs our railways continues to attract widespread public controversy. In recent posts we’ve been looking at the tensions between the Government’s ‘open public services’ agenda for outsourcing and its ‘open policy’ agenda for greater transparency. In this post we suggest that rail privatisation has never been wholly accepted because the Major Government overlooked the essential publicness of the railways – a warning from history for the current Government’s attempts to outsource much of our public services.
Rail privatization is back in the news again with the announcement that Virgin Trains lost out to FirstGroup in its bid to continue to manage the West Coast mainline, a contract that Virgin has held since 1997. Richard Branson quickly offered up a withering criticism of the way the Department for Transport conducts its franchising arrangements for new passenger train operating companies (or TOCs). Branson has threatened that Virgin will walk away from the railway market for good, having spent £60 million on four thwarted bids, because (it says) it won’t play the game of offering up unrealistic performance targets to win business. Of course, this could just be regarded as sour grapes – but Branson is usually too savvy to let a knock-back make him seem like a bad loser. Rather, it’s best to assume he means it, and that his criticisms of the franchising process are heartfelt and somewhat accurate. If this is the case, how did we reach this point where Britain’s best-known businessman expresses so little confidence in what was supposed to be such a flagship privatization policy?
The 1993 Railways Act privatized the rail network. British Rail was broken up into over 100 different companies, with the complete separation of infrastructure (track, rolling stock, stations and signaling) from passenger train services. The latter were broken up into 25 different franchises (or contracts) leased to private sector passenger train operating companies. The number of franchises has subsequently been reduced, with a small group of private companies now dominating the market, including the likes of FirstGroup and the national rail companies of Germany (Deutsche Bahn) and the Netherlands.
Rolling stock, meanwhile, was transferred to three Rolling Stock Leasing Companies (ROSCOs), who were privatized and sold to private equity investors and banks including Abbey and the Royal Bank of Scotland. Rail infrastructure was transferred to Railtrack, which outsourced all maintenance and renewal to private contractors. Railtrack was quickly privatized in 1996 to prevent the unwinding of railway privatization by the incoming Labour administration. After the Hatfield rail disaster, Railtrack was sold to Network Rail and, remarkably, its current legal status is unclear with disagreement as to whether it is a public or private body. Franchising was also outsourced but was eventually brought back into the Department for Transport given the political sensitivities over the railways.
Proponents of rail privatization claimed it would improve quality and efficiency. While there are more trains on the network and there have been some improvements in safety, there have also been many downsides to privatization. There has been a significant rise in unregulated fares – particularly walk on tickets bought in stations or on trains. Costs have risen, since rolling stock is now leased from ROSCOs and construction costs would have previously been written off by British Rail. The unit costs of the privatized industry have risen significantly as the various train operating companies are not able to realize the economies of scale available to the previously national network. The complex nature of the industry has also watered down accountability and confused the general public (and no doubt often policymakers as well).
The numbers of passengers on the railways has also increased significantly but the start of this can be traced back prior to privatization. Factors such as the cost of petrol and increased road congestion could also help to explain this rise. Nonetheless, the public subsidy to the rail network has increased to about £4 billion in 2010/11 – down from a high of £6.5 billion in 2006/07 but far higher than what was given to the sector under public ownership. The effect of this has been to place an even greater burden on profitable routes such as the East and West Coast mainlines to return a significant dividend for the taxpayer – hence the reason perhaps that the Department of Transport has put so much faith in the highest bidders for these routes.
This faith hasn’t always been realized. Two operating companies, GNER and National Express, have handed back the East Coast franchise because they were not able to service the expected payment targets. Both providers over promised in order to win the franchise and ran into financial difficulties trying to deliver their plans. The result has been a legacy of under investment and cost cutting – which of course has ultimately cost passengers.
Richard Branson argues that the selection of the new franchisee for the West Coast mainline shows that the Department for Transport has not learnt the lessons from previous failures. The short-term political desire for a good headline has over-ridden the long-term interests of the network – and the concerns and opinions of rail users, despite active representation from passenger groups. But the broader lesson from this ill-conceived and rushed policy might be that some services need to be properly publicly accountable, even if not every aspect of them is delivered by the state. Does the current government understand the essential publicness of our public services?