House – Public Policy Design
Blog: Local industrial policies for the ‘public services market’
David Cameron has heralded the Open Services White Paper as the beginning of the ‘decisive end of the old-fashioned, top-down, take-what-you’re given model of public services.’ Considering the deficit reduction narrative, the longstanding and negative perceptions of our public services and welfare dependents, one can see why liberalising a public services market is an attractive political strategy for the Conservatives.
There are, certainly, economies of scale to be gained for certain types of products and services. When it comes to social services, quality – ‘getting it right first time’ – is more important. Service models that respond to the range of needs of vulnerable client groups are more likely to produce positive outcomes. Knowledge of the local context, making the most of local networks, the rapid and flexible use of resources: these factors are crucial in delivering quality services to citizens, crucial in capturing those efficiency gains.
How can the Coalition encourage such offerings to market? An industrial policy for the entire public services market could frame the types of providers we want to see in particular service areas, and then apply the relevant policy instruments to encourage innovation and quality. It is not about introducing another statist measure, nor protectionism. It is not about ‘planning’, nor ‘dirigisme’. It is about basic principles being established in terms of incentivisation, risk, reward, and an unrelenting focus on quality services. It is about harnessing best practice in these areas, building on the work we have seen taking place at the local level. It is about drawing the link between public sector reform and local economic growth.
In terms of ‘getting it right first time’, East Devon and Stroud housing services are a case in point. They have achieved huge productivity gains, with claimants processed in half the target time. The newly released capacity has meant they have been able to respond to increased demand.
There are other examles. Local authorities are thinking about how to better share risk and reward with and between providers. The collaborative approach between buyer and seller has found its ultimate expression in the joint venture vehicle, a new model for managing risk and reward, epitomised by Croydon’s Local Asset Based Vehicle. And front line children’s services are being shared by Kingston and Richmond; a service area traditionally riven by political sensitivities has been innovated.
What has the Coalition done to encourage such innovative and flexible service offerings? When it comes to managing risk and reward across the supply chain, the Coalition must get to grips with the Prime Contractor Model, which has tended to result in an unfair share of risk and reward between different types of providers. The Merlin Standard, introduced by the Department for Work and Pensions, sets out principles and behaviours, but it has no teeth.
Local authorities are still not duty bound to commission on anything other than price alone. While cash strapped authorities can be forgiven for doing this, they should also be compelled to commission on the grounds of social and environmental value, which would bring more innovative and sustainable service offerings to market.
There is also the challenge of payment by results. Providers should always be incentivised to produce outcomes agreed in the contract, and paid accordingly. But it is clear that providers with limited cash flow – such as those without access to debt finance – will be disincentivised from entering such a market place. A commissioner has said to us that such a system would, ‘not create the sustainable economy we want. When the local economy is ready, then we can make that link.’
Rather than just lifting barriers to entering the market, the Coalition should consider the evolution of the public services market. Liberalisation of an immature market will exclude service offerings that bring real value to citizens. Quality services need to be incentivised, risk and reward need to be shared equitably across the supply chain, and research and development must be given appropriate resource to ensure the proliferation of innovative service models . An industrial policy could catalyse these interventions – with due attention to sequencing and timing – at the local level.
The market has always been managed and always will be – there is nothing inevitable about it. What is important is that it is managed to encourage innovation, quality and genuine competition. Those three things are key to economic growth and public sector reform. National and local industrial policies can deliver both.
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