Select Committee on Public Administration Minutes of Evidence

Memorandum by Professor Gerry Stoker, Chair and John Williams, Executive Director, New Local Government Network (PSR 11)

Is the Government's strategy for public service reform on the right track?

  1.  For the first time in over two decades, reform of public services is centre stage in the public policy debate. Since the 2001 General Election the Government has been under considerable pressure to deliver significant improvements in the quality of public services.

  On the face of the available evidence about the public's level of satisfaction with the performance of public services, the Government is right to press ahead with a radical reform programme.

  2.  There have been significant increases in public spending delivered through the first Comprehensive Spending Review (1999-2002) across the key public services. Nonetheless, as this recent NLGN commissioned MORI survey demonstrates, there is no doubt that positive perceptions of the public sector have fallen significantly over three years.

  3.  The Government's overarching mantra of "what matters is what works" has been its guiding intellectual compass throughout the development and application of its public service reform programme. Although few could argue with the pragmatism of such a statement it does have its limitations. There is as yet no clear intellectual rationale or rigour to the Government's use of private sector involvement in public services. We will argue that the Government must get beyond the "what matters is what works" line to develop a more robust and coherent vision of public service delivery in the 21st century.

What are public services in the 21st century?

  4.  It is difficult to have a debate about the reform of public services without first trying to understand what defines a public service today. The world into which public services were born has changed irrevocably. The post World War II era of collectivism gave birth to the great pillars of the welfare state and the creation of key public services such as the provision of education and health care, free at the point of use.

  5.  Today what defines a public service is often increasingly complex and blurred. Many would argue, for example, that buses remain an essential public service but today they are almost entirely provided by the private sector, whilst the role of the regulator assumes the mantle of defender of public service outcomes in critical areas such as electricity and telecommunication.

  6.  In seeking to define the role of public services, it is worth remembering why they exist. Public services are there to improve the quality of people's lives. They are not primarily there for the producers of public services. Keeping the user at the forefront of the debate about modern public services is vital.

  7.  Clearly, this broad "quality of life" definition could be applied to a whole range of services that affect the public from Tesco's supermarket to Lunn Poly Holidays. So what defines a public service from any other service? A public service could be defined as one that:

    —  Relies upon an element of taxpayers money to be provided (even in the short term) to establish or sustain the service through part or whole subsidy;

    —  Accepts a different and extended type of accountability. Managers of public services have to justify why they ration resources in the way that they do and those services in turn are subject to a form of democratic accountability and scrutiny;

    —  Has a defined customer base. Most public services are unable to choose their customers and most customers are unable to choose their public service supplier.

  8.  However, if the guiding principle of public service reform is the satisfaction of end-user and the wider community, then what do the public think defines a public service today? In the NLGN-commissioned survey referred to above, MORI tested public attitudes towards public service and the role of the private or voluntary sector in helping to deliver those services. The survey revealed that the public has a sophisticated and complex view of what defines a public service. The two top definitions of public service were:

    "Available for everybody to use"—40 per cent.

    "Important to the whole community"—38 per cent.

  9.  When asked if a key definition of a public service is the management of the service by central government or local councils, only 23 per cent of respondents agreed. Perhaps even more revealing was that only 4 per cent of the public thought that a key characteristic of a public service was that it had to be provided free at the point of use. From prescription charges to leisure services, the public are perhaps more aware than politicians of the limits and realities of "free" access.

  10.  The survey then went on to test public opinion towards the role of the private sector in delivering public services. Although a small and defiant proportion of the population (approximately 11 per cent) are opposed to private sector involvement in public services (even if it is proven to be more effective), the vast proportion of the public remain non-ideological and pragmatic about their involvement. To that extent the public appears to be singing from the same hymn sheet as the Government on the issue.

  11.  This accords with other public opinion survey material in recent months, which shows that the role of the private sector in public services is a low salience issue for the public. Less than 1 per cent[1] of individuals spontaneously mentions this issue when asked to say what are the most important issues facing Britain today.


  12.  There has been significant recent interest in the term "public service ethos". In the discussion about public service ethos, there exists a suggestion that motivation for those who work in the public sector is somehow more "pure" than those who work in the private sector. There is simply very little evidence for this.

  13.  To attempt to make such a suggestion is to denigrate at a stroke, the motivation of the millions of people who work in the private sector. They may have a variety of motivations for why they do their job—maybe they enjoy their job, are provided with more freedom to be innovative or simply need to earn a living. None of these reasons makes their motivation any less "pure". Second, over 1.5 million people are employed in local government, performing a wide range of tasks from the collection of rubbish to conducting land searches. The mixed market of service provision that has been generated in local government during the past 15 years means that today, public and private sector employees often work side by side to achieve common goals and objectives.

  14.  The recent development of a diverse market in education support services has involved a significant recruitment of public sector managers to the private sector. Those people who allege a more "pure" motivation of public sector staff should be asking themselves, what drives those senior managers to work in the private sector? Are they driven by a less "pure" motive than their colleagues who choose to stay directly employed by the public sector? These people are of course continuing to make a very important contribution to delivering public service outcomes, as does the teacher who chooses to work in the independent sector. What is more likely to these two people is a desire to have access to more resources, space to experiment with new teaching methods or more opportunities to export their vision of raising educational attainment to a wider audience. If the public regards some public sector workers as "heroic" it is more likely to be in sympathy with the poor and stressful conditions within which they are expected to work.

  15.  Critics of a more diverse market in public service provision have asserted that the very existence of "profit" muddies the motivation of the people who are employed by the private sector to deliver public services. However, this assertion is flawed on four counts:

    —  It fails to recognise the fact that most public sector organisations that operate on the scale of multi-million pound businesses, need to function as a business with, in theory, the same disciplines, performance management frameworks and customer responsiveness as a business;

    —  The existence of the need for a return on investment is a clear incentive mechanism for continuous improvement in public services and for the private sector to deliver on the outcomes or outputs that the public authority commissioner has set;

    —  Profit is nearly entirely recycled back into the British economy. A proportion will be paid in tax, a proportion to shareholders (80 per cent of whom are large pension investors) and the remainder re-invested into the company;

    —  Profit has always existed in parts of public services. If a school had been built under a traditionally procured contract, profit would have been made by a variety of different organisations such as the architects, engineers and builders etc. Very few people today continue to suggest that central government should "nationalise" the entire supply chain that public services need to access in order to deliver a service.

  16.  Profit is not a barrier to the delivery of effective public service. What is needed is a public service and not a public sector ethos. We would argue that the idea of a public service ethos is less important as a description of the motivation of public sector workers and more important as an aspirational concept for all those involved in public services.

  Public service ethos should embrace:

    —  A commitment to treat service users with respect, due to their position as taxpayers and citizens;

    —  A full and diverse public accountability for service provision;

    —  To work in a joined-up manner with other public service providers in the case of emergency services and where effective achievement of outcomes demands it.


  17.  NLGN is committed to the modernisation of local government. We believe that significant improvements can be made to people's quality of life through the creation of effective, responsive and accountable local government. Local government is responsible for £72 billion of public expenditure per annum and has a key role in the delivery of a wide range of public services alongside the development of the local spatial environment, which affects the quality of life of every individual citizen.

  18.  Local government continues to be at the forefront of the reform of public services:

    —  More citizen-to-government contact takes place at between local government and its' citizens than any other level of government in the Britain. Over one billion calls are made each year between the public and local government[2]2;

    —  Service delivery performance in local government remains variable at best and appalling at worst. Of the one billion calls referred to above, over 200 million are left unanswered. The recent Audit Commission report, "Changing Gear"[3]3, stated that in terms of service delivery performance, "two thirds of councils were coasting". Yet those that were performing well, "knew the value of working with the private sector";

    —  There is significant experience in parts of local government of the role of the private and voluntary sectors in helping to bring about improvements in public services.

  19.  During the past decade local government has become the test bed for the emergence of a mixed market in the provision of public services. What has clearly emerged during that time is evidence of a growing maturity in the relationship between parts of the public and private sectors reflecting a better understanding of how to achieve service improvements.

  20.  Under the CCT (Compulsory Competitive Tendering) regime, relationships were commonly adversarial and local authorities used enormous amounts of creative political and managerial energy doing their best to avoid compliance with the law. By the time the current Government enacted the Local Government Act 1999 and replaced CCT with Best Value, both the public and private sectors welcomed the change. Best Value requires councils to make a much more rational "make or buy" decision based on an assessment of current resources and what is more likely to secure the best level of service for the public service in the future.


  21.  As a result of Best Value, there is growing evidence of an increasing range of service delivery partnerships being entered into voluntarily with the private sector, although the total number of contracts being tendered by local authorities has fallen by 23 per cent[4]4.

  What is the rationale for a greater involvement of the private or voluntary sector in the delivery of public services in local government?

    —  Ending monopolistic provision: a monopolistic or oligarchic provision of any service, whether in the public or private sector is more likely to lead in the medium term to weak performance. This applies equally to services in the public and private sector. In many local communities several important services are currently only available through one supplier ie the local authority. In such circumstances there is an even greater case for Government intervention to create a more diverse supply market to promote innovation and greater cost effectiveness in public services;

    —  Capital investment and shared risk: investment through PFI or PPPs has delivered a substantial number of improvements in the infrastructure of public service in recent years ranging from the refurbishment and rebuild of secondary schools in Glasgow to the delivery of a new fleet of waste disposal trucks in Lambeth. These projects are often delivered to time and on budget. Risk, across a whole range of areas, is shared with the private sector partner;

    —  Innovation and challenge: one of the most important by-products of a contestable supply market is greater product innovation and challenge. All of us find it difficult to challenge what we do or change how we do our jobs. People are often understandably defensive about the quality and nature of their work and without an element of competition, radical challenge to any service is unlikely;

    —  Focus on core business: most unitary local authorities in England and Wales deliver around 700 different services. It would be almost unthinkable for a private sector company to attempt to specialise in the delivery of such a wide range of services and yet we expect local authorities to do just that. In the 21st century a local authority's core business is to be a guarantor of service outcomes and the leader of the community. Partnership with the private or voluntary sector can help to lever managerial time to take on and tackle these challenges;

    —  Access to specialist skills: choice and innovation in product development will often require the use of specialist organisations or individuals that no local authority would want or could often afford to develop "in house". Partnering with the private or voluntary sector can often provide access to a wide range of skill sets that a local authority would be unable to justify developing and maintaining as part of an "in-house" operation;

    —  Access to economies of scale: there are 388 local authorities in England. Each constitutes a potential individual unit of economic and service provision. It would be an expensive luxury for the public sector to pay for the delivery of 388 local online strategies. Joint commissioning or procurement of services has the potential to lever significant additional resources to the public sector, which can then be ploughed back into front line local service delivery. For example, the business case prepared by PWC for the aborted joint corporate services deal between four southern local authorities, showed potential annual savings of circa 30 per cent in administration costs. Scale those figures nationally and the savings can create opportunities for greater spend in other parts of the public sector that need investment;

    —  Efficiencies: through business process re-engineering or the application of new service delivery platforms and improvements in the management of the organisation, a contestable supply market should help contribute to improvements in public sector productivity;

    —  Enhanced performance management: something that is still weak in many parts of local government and in general only exists in response to the need to monitor BVPIs rather than being part of the culture of the organisation. Performance management and the establishment of rigorous baseline data sets is more developed as a critical measure for success in the private sector;

    —  Greater performance accountability: contractual relationships/partnerships will always contain measures for redress and rectification in the event of failures to deliver, as befits a split between purchaser and provider. Realistically internally delivered services lack such accountability and redress is more limited or tenuous.


  22.  The transfer of staff from the public to the private or voluntary sector can be a difficult process. Staff are naturally fearful of transferring, driven in part by a perception that there may be changes to their terms and conditions. It is essential that if a council decides to engage in a public-private partnership that they seek to overcome this by:

    —  Being clear with staff and the wider community about why they are seeking to work with an external partner and what they are hoping achieve;

    —  Providing staff with an open channel of communication (from seminars to hotlines) so that they get accurate and updated information rather than via the rumour mill;

    —  Involving staff right the way through the process of selecting a preferred partner and negotiating the detailed contract.

  23.  On the issue of TUPE transfer agreements and the emergence of two-tier workforce, it is important that transferred staff have their terms and conditions protected. Improvements in public service should not come at the expense of staff terms and conditions. This should apply to new staff as well as existing staff. There is plenty of evidence of good practice with regard to this issue in local government. Lessons need to be shared between local authorities and the public sector about how transfers are effectively dealt with in practice.

  24.  On a more positive note, staff that transfer to the private sector, rather than being "protected" from such a move, may actually benefit. In many cases they may:

    —  Be better managed than they were by their public sector employer;

    —  Receive access to additional training and development;

    —  Have greater freedom and responsibility;

    —  Gain access to a wider range of career opportunities.

  Local authorities have the legal powers to take these issues into account when they decide to award a contract to an external partner. A failure to achieve the right outcomes for staff could be a reflection of the public sector's procurement capacity or a limited supply market.

  25.  Secondments have been put forward by some as a possible way of overcoming a number of the political difficulties of transferring large numbers of staff from the public to the private sector. Liverpool City Council's strategic partnership with British Telecommunications, where 800 staff have been seconded to a joint venture company, is an example of this within local government.

  However, secondment on such a scale over the length of time proposed (ie several years), does have a number of significant drawbacks:

    —  For staff: it potentially creates a glass ceiling for future promotion and training.

    —  For the public sector: it creates confused lines of accountability and is inevitably more expensive because the private sector will be expected to bear significant additional risk if the major resource (human), is not within their control.

    —  For the private sector: it is likely to lead to less effective performance and a reluctance to commit to long-term partnerships where secondments are insisted upon instead of transfers.


  26.  As stated earlier, one of the most important differences between a public and private service is the different and in some ways enhanced levels of accountability for the delivery of a public service to a broader range of stakeholders.

  27.  Private or voluntary sector organisations that want to deliver public services have to be aware of, and work within, these boundaries. However, ultimate accountability for the delivery of a pubic service should always rest with the commissioner of the service—the public body. Working with a partner to improve public services does not mean "outsourcing" the accountability for the performance of that service. To this extent, local politicians should take the lead in explaining to the public why the council is engaging with a private or voluntary sector partner and ultimately for the performance of that partnership to the user and the community.

  28.  However, the picture of accountability is a complex and developing one in local government. Recent changes to political management structures and a clearer distinction between executive and scrutiny responsibilities of individual councillors have both helped and hindered the process of accountability for the performance of PPPs. Accountability is assisted in that there it is clearly easier to identify the lead members responsible for managing the strategic elements of the partnership on a daily basis. Yet the principle of setting up of any large-scale partnership and the subsequent agreement to award a contract to a specific supplier are done with the consent of the full council.

  29.  When it comes to scrutinising the performance of the partnership, council members on the scrutiny panels often believe that their role is to expose under performance in a public forum, by cross examination of the contractor. Whilst the private sector should be accountable for its performance in these environments, it is important that the scrutiny processes recognises that lead members are ultimate public face of accountability for the success or otherwise of the partnership and that proper protocols are in place to manage this process effectively.

  30.  Finally, to perform the role of service champion and a commissioner of service outcomes, local authorities should have the power to join up public service delivery agents at the local level when the effective achievement of service outcomes necessitates. As a greater number of services are either devolved to frontline institutions or outsourced to voluntary or private sector, the local authority needs new levers to help integrate service delivery unit objectives around common community objectives. That is why in a pamphlet published earlier this week[5]5, we called for the Government to impose a duty on other local public bodies to have regard to the community plan of the local authority as a practical tool for affirming local government's broader community leadership.


  31.  New models for the delivery of public services are constantly emerging. In local government, the evolution from the CCT regime to Best Value has helped stimulate a significant improvement in the relationship between the public and private sector. It has stretched the line of performance and liberated innovative public authorities and private sector suppliers to think afresh about the models that they wish to use to deliver public service improvements. There can be little doubt that we are only a small way along the journey of developing new service delivery models.

  32.  In local government, the past 18 months has seen the emergence of a new model for delivering public services: strategic partnerships between the public and private sector. NLGN produced the first major study in July 2001 on these partnerships (a copy will be circulated to all members of the committee)[6] 6. A second study is currently being undertaken and will be completed by March 2002, which is examining in detail, how these relationships are being managed to deliver more outcome focussed benefits for the user and the community over the whole life of the contract.

  33.  What characterises a strategic partnership between the public and private sector? They:

    —  Often involve a number of the core functions of a local authority.

    —  Are often long term, multi-functional contracts.

    —  Are developmental in nature and flexible enough to respond to changing demands.

    —  Often contain a shared element of risk and reward.

  34.  To date a number of these partnerships are on track to deliver significant benefits for the local community. Sometimes the partnership has been constructed as part of the town's regeneration strategy, providing a mechanism to grow the business and develop new employment opportunities in some of the most socially deprived parts of the country. The true test of these strategic partnerships will be in 4-5 years time when they will have to demonstrate that they have delivered on their primary objectives and have been flexible enough to respond to changing tastes or priorities.

  35.  In recent months there has been a growing interest in the development of not for profit models or "public public partnerships" to assist in the delivery of public services. However, the disciplines of managing resources effectively, motivating staff, delivering continuous improvements in services, applying effective performance management regimes, promoting an empowered can-do culture and responding to consumer changing tastes are just some of the requirements that any organisation will be expected to demonstrate. The critical policy question for central and local government is, under what conditions are these characteristics more likely to exist?

  36.  We would argue that the triple issues of contestability, diversity and skilled public authority commissioners and procurers are, if delivered, more likely to bring about continuous improvements in public service outcomes, regardless of the specific models used. What is needed is:

    —  Greater experimentation with a variety of new models.

    —  Systematic tracking of the performance of all emerging models.

    —  Contestable supply markets to drive up improvements in performance.


  37.  To deliver and sustain continuous improvement in public services, organisations that provide public services in any form of models outlined above need to be motivated and free to develop the capacity and tools needed to bring about change.

  Motivation should be driven from three levels:

    —  Top down: Government has three critical roles in stimulating improvement. They can use policy levers and funding mechanisms to incentivise performance or the collective provision of services, set targets and monitor performance through an inspection or local PSA regime and empower front line staff to be innovative.

    —  From the side: Constestability and challenge needs to be generated through a diverse and competitive supply market in local government and across the public sector. Public authorities should be expected to make a rationale "make or buy" judgement on the basis of the available resources that they have access to and the needs of local consumers. If a diverse and contestable supply market is desirable it is unlikely to come about by chance or wishful thinking. Its development should be actively encouraged and promoted by central and local government.

    —  Bottom up: The user of the service should have the tools to stimulate improvement in public services through the ballot box, more accountable performance mechanisms and greater choice over which supplier individual customers may wish to use.

  38.  Central to the long-term agenda for revitalising public services is the renewal of political and managerial leadership.

  Leadership is possibly the most overlooked and most important element of the improvement strategy. Impressive step changes in public services have been brought about in recent years by the vision and determination of local politicians and senior managers to make tough choices and long term decisions that will deliver improvements in public services and the well being of the community. No improvement strategy can deliver significant results without addressing how we encourage and sustain a higher calibre of senior political and managerial leaders in our public services.

  Managerial capacity in the public sector is mixed. Often a track record of technical ability and professional skills get you to the top in local government. There is not sufficient focus on developing and rewarding corporate management capacity. This could be addressed in the short term through improved fertilisation across sectors. However, it is a reflection of the endemic short sightedness of our national and local politicians that to this day local government does not have and never has had its own national graduate management programme. In the medium term local government will grasp this and the nettle of competitive remuneration packages for senior public sector managers, if it wants to compete for the skills and talents of the next generation of managers.

  Variable political leadership in local government remains by far the largest stumbling block towards improvement in public services and yet for obvious reasons it is the obstacle that no national political party is prepared to seriously take on. That is why NLGN supported recent moves away from the committee system but why we continue to press for more radical solutions to address the issue such as the introduction of directly elected mayors, electoral reform and a reduction in the number of councillors (balanced by an increasing number of representatives).


  39.  As stated, the Government's intellectual compass for reforming public services has been to repeat the mantra, "what matters is what works". However, such a pragmatic attitude to reform does have three significant drawbacks:

    —  It's important that the public, local and central government, are able to "buy-in" to the values that describe what public services are for and how they are to be improved. This has to mean more than just providing a "good" service. It must embody other values such as a recognition of the different levels of accountability.

    —  If the Government wants to develop policy in order to arrive at a particular destination in the future (eg where there exists a truly diverse and contestable supply market in public service provision), then it is unlikely to get there by adopting a pragmatic "wait and see" attitude. To create such a market will require policies and implementation strategies that may have to be advanced without first having the "evidence" that it "works" within a particular sector. The creation of a limited, uncompetitive market in some public services (because the Government is waiting to see what will happen), may lead to self-fulfilling prophecy of weak performance.

    —  It may sometimes lead to the impression that the Government is confused and unsure about where it wants to go with public service reform. This only serves to unsettle public sector employees who might be opposed to further reforms and potential private sector suppliers who will be assessing their company's long-term commitment to a market.

November 2001

1   MORI Public Opinion Omnibus Survey, Autumn 2001.  Back

2   BT/Henley Centre Study 2000. Back

3   Audit Commission, "Changing Gear Best Value Annual Statement 2001". Back

4   Audit Commission, "Changing Gear: Best Value Annual Statement 2001". Back

5   Stoker: "Beyond PSAs: the Case for Forerunner Councils", NLGN, November 2001. Back

6   Allen, Filkin, Williams, "Strategic Partnerships for Local Service Delivery", NLGN, July 2001. Back

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