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Wheels within wheels, by Sir Christopher Foster

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11 March 2005

Is our system of government in terminal decline, obsessed by spin and central control? Sir Christopher Foster, a former adviser to both Labour and Tory ministers, thinks so. He uses privatisation of the railways to explain the failings and suggests ways to get back on track

Hardly a week now passes without some minister hunkered down in parliamentary disaster. Before Christmas, it was poor David Lammy standing like jelly in a storm at the very end of the progress of the Mental Capacity Bill through the Commons while, over his head, his boss Lord Falconer and a Catholic archbishop tried to reconcile what were arguably the irreconcilable wordings of its central clause. Then, a week ago, Charles Clarke – doughtiest of ministers – was equally frazzled at a similar late stage of the Prevention of Terrorism Bill. MPs of every party growled in disbelief as new drafts of its most contentious clause winged their way into and around the Chamber. The Bill's subsequent reversals in the Lords indicated how far things had spun out of control for the government.

The media encourages us to laugh at such cock-ups. Yet on the basis of these two laws, doctors and nurses will have to decide when they can let a patient die and police officers under what circumstances they can hold suspected terrorists or let them go out into the community. However, these are but some of the most conspicuous manifestations of the confusions that happen when a prime minister tries too much to centralise power.

Over the past 25 years, governments have taken successive steps to increase their power base, first in Whitehall, then in Number 10. And yet one still hears of the prime minister's frustration at not being able to move the levers of power to his liking, as well as much from the top about civil and other public servants' shortcomings. More power is sought. And so it goes on. But can such centralisation ever achieve good government? Would it not be more sensible for policymakers to give those engaged in running, managing and improving the public services more freedom to do their job well?

Recent changes in the way British central government operates have made it harder for the public sector to function well. The top-down political environment – with the priority given to news management – has been counter-productive. The railway industry is a perfect example of what can go wrong when governments over-centralise. I was an adviser to Conservative transport secretary John McGregor in the early 1990s and a non-executive director of the Railtrack board until 2000, and so I know some of the problems from first hand.

Privatisations, although often unpopular at the time, were among the success stories of Margaret Thatcher's government. However, under prime minister John Major the process of preparing for rail privatisation was fraught. It suffered from the vice of a weak Cabinet and a PM unable to settle differences. This conflict was apparently solved by a white paper in 1992, but it was so ambiguous it meant different things to different ministers. So little had been settled when the Bill entered Parliament that it was deliberately drafted to allow for fundamental changes to the form of privatisation adopted. But the cost was that real parliamentary and industry scrutiny of the chameleon scheme enacted was impossible.

No follow-up white paper was attempted. If there had been, it would have avoided the subsequent confusion as it would have had to make clear to all concerned how the 100 or so new bodies were to function; how they would be motivated to improve railway performance; how rail could carry more passengers without overcrowding; and exactly what the jobs of the two industry regulators would entail. I have little doubt that these issues could have been sorted out, but if not enough to satisfy a parliamentary majority and concerned public opinion, the scheme should have been dropped or substantially altered.

It is always unwise to undertake as fundamental an organisational reform as rail privatisation when the Opposition is violently opposed and – as was plain from 1992 – virtually certain to win the next election. This hostility showed in several ways. One was that it became hard to piece together the data that would have shown how performance was, on balance, improving, and so counteract the bad-mouthing the new government repeatedly gave the industry.

Every privatisation needs a few years to bed down. Teething problems require a government ready to help overcome them and, if necessary, to change the law. The incoming government after 1997 was reluctant to do so. While not willing to renationalise rail, it seemed almost as if it wanted rail to fail because it had been privatised.

Yet the foundation of Deputy Prime Minster John Prescott's new transport policy was that he would increase rail traffic and other public transport to such an extent as to reduce road congestion. If his 1998 white paper had not been a collection of unsubstantiated assertions, but had attempted the relevant quantification, it would have shown that transfer on the scale needed was practically impossible, and therefore that his targets for rail and bus – and for road decongestion – were unrealistic.

The new government loved railways as an instrument of public policy, but not their privatised form. So small, remediable problems grew larger. Prescott called 'summits' where he gave orders that he had no legal powers to give. Ministers took scarce legislative time to create a new super-body for the industry without careful definitions of its objectives and functions. So the roles of the industry's regulators became more confused. Government undermined the effectiveness of the industry's performance incentives by repeatedly bailing out the losers.

Rising traffic meant there were now many overcrowded bottlenecks requiring investment. Because virtually every part of the rail system was subsidised, almost all needed public money. However, while the government encouraged the preparation of a flood of new rail investment schemes, it gave little guidance on the money available to implement them, or on the criteria to establish priority between them. When their high costs became apparent, virtually all were dropped.

However, what interrupted the gradual improvement of the railways was the response to the dreadful accident at Ladbroke Grove in 1999, in which 31 people were killed. The government's news management seemed dictated by a desire to absolve Prescott from blame by heaping opprobrium on the industry. The railways were not allowed to deplore what had happened, promise a careful investigation, state their intention to learn from experience so as to go on improving the excellent safety record, and meanwhile restore the service as quickly as possible for the benefit of passengers. Instead, it was treated as a scene of crime under intense media attention, with no recognition that, even in well-run operations, accidents will happen.

After Ladbroke Grove, Prescott had seemed to suggest that the railways should be made safer, whatever it cost, although they were among the safest in the world. After another dreadful accident at Hatfield in 2000, the railways' safety record went on improving. But risk aversion has been the most substantial factor since, leading to a nearly threefold increase in rail costs. It is also a main reason for a fall in punctuality probably not experienced since the Second World War.

Finally, the 2004 white paper on the railways was another with no clear analysis of the problem or of how to restore punctuality and reduce costs. Spun rather than argued, it was full of ambiguities about how the new regime proposed to manage the railways.

It is not only the railways that have suffered from such difficulties. So how could we do things differently and better?

At present the impetus behind the constant parading and recycling of new policies is the perceived need to fill the media with news items. Insofar as that seems necessary, it should be made clear that these are often no more than tentative policy ideas that might not survive close attention.

When it is decided that some part of the public sector cannot be expected to improve under existing policies and law, closer attention should start with a dispassionate analysis of what the problems actually are and what the consequences would be of not solving them. This requires consultation with consumers and consumer representatives, and producers and producer representatives.

To be effective, this consultation needs to be based on a well-evidenced and objective white paper or other public document for which the relevant minister takes responsibility. It should not be spun by political spin-doctors but, while reflecting the minister's judgements, its factual accuracy should be verified by politically impartial civil servants. Either in the same or a subsequent public document, possible alternative solutions should be discussed.

The minister should give his or her reasons for the solution preferred; show that any substantial objections made in the consultation process have been faced up to and, as far as possible, met; and demonstrate that what is proposed is practical. Then, if a Bill is needed, it should be possible for it to be reasonably complete when entering Parliament. The process should be similar, but simpler, if the outcome is a change in regulations. A counsel of perfection, some will say, but even several steps towards it would save much currently wasted time and effort.

The present situation – where all too many ministerial statements and public documents are spun rather than argued, and where Bills often fall apart because they are clearly misconceived, unenforceable or impractical when eventually given serious scrutiny – reflects no credit on anyone.

Much has been said about New Labour's obsession with targets. While ministers might reasonably have aspirations for whole sectors – in terms of educational achievement or the reduction of waiting times in the NHS – actual targets must be specific to institutions, be they schools, hospitals or other management units. They must be realistic; compatible with each other; and tested to show they will not have perverse consequences. It should also be clear what freedom each management unit has to resolve conflicts between targets where these arise. If there are financial incentives and disincentives associated with targets, these too should not have perverse consequences.

To these ends, targets should be negotiated, so that as far as possible all concerned agree they are stretching but achievable. Once set, they should be maintained for a reasonable number of years. If central government insists on intervening in ways that adversely affect the achievement of targets already set, arrangements should exist for compensating or otherwise indemnifying the public body affected. Finally, both the targets, and the extent to which they are met, should be objectively assessed by non-politically motivated public bodies and placed in the public domain.

Only a public sector in which the power to set targets is reasonably decentralised is likely to be effective in such terms.

British local authorities, nationalised industries and other statutory public bodies once had too much autonomy. However, since the 1980s, ministers have used legal and financial instruments to turn them into agents of central government. At the same time, there have been successful attempts to reduce the size of the public sector, but in ways that actually increased the number of public bodies, many of them inspectors, regulators or auditors.

One consequence was that interactions between public bodies frequently became far more numerous and complicated. With powers usually poorly defined in law, problems of co-ordination and liaison became more urgent, time-consuming and often harder to resolve.

One irony, especially since 1997, when ministers have increasingly insisted on their right to instruct any part of the public sector they choose, usually again because of media attention, is that the sheer complexity of the public sector often defeats them. It is the size and complexity of the public sector, and of the relationships between its components, that stops ministerial power being absolute.

But there is another aspect to this question that is also relevant to the nature of the political environment in which the public sector operates. Far from being 'first among equals', we now have a prime minister who believes he has the right and the power to instruct other ministers. Some of his special advisers have more power than ministers. As the Iraq war showed, the destruction of a Cabinet system in which other ministers can when necessary challenge the PM (and each other) is dangerous.

But there is another consideration. Concentrating so much authority in one person has grossly overloaded him to the point where his, and his staff's, attention to business cannot possibly be thorough, and all too often tends to be dominated by day-to-day considerations of news management. This, in turn, helps explain many other shortcomings of the environment in which the public sector now operates.

We need – and deserve – a better system.

Sir Christopher Foster has been a professor of economics, an adviser to ministers from the 1970s to the 1990s and a non-executive director of Railtrack from 1994 to 2000. This feature is based on his book, British government in crisis, which will be published next week by Hart Publishers (www.hartpub.co.uk). He will also be speaking on this subject at a Public Management and Policy Association lecture on March 17

PFmar2005

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