Mother of all problems

18 Jun 09
Gordon Brown's government is making a last-ditch attempt to regain the policy and political high ground. But the options for public services are limited, whoever is in power, says Tony Travers

By Tony Travers

Gordon Brown's government is making a last-ditch attempt to regain the policy and political high ground. But the options for public services are limited, whoever is in power, says Tony Travers

** Tony Travers will be speaking on 'Crunch time – what next for public services?' at the CIPFA conference in Manchester on June 25 **

‘Oh, what a circus, oh, what a show,’ wrote Tim Rice in the hit song from Evita. He might well have said the same about Gordon Brown’s government after the battering it has received in the past few months. Even now, as the fallout from the local and European elections starts to lessen, political pressure on the prime minister and his administration remains intense.

As part of the PM’s escape strategy, he promised humbly to learn from his mistakes, to make his government more transparent and, most intriguingly, to provide ‘democratic renewal’. Last week, in Parliament, he started to put forward new ideas for potential reform, such as changes to the parliamentary voting system and a part-elected House of Lords. The commitment to democratic renewal could, if it resulted in real reforms, alter the nature of the British State. Brown’s efforts at personal renewal are also expected to herald another attempt at public service reform.

If the government were to keep its promises to change Parliament, government and public services, the next 12 months would need to be radical indeed. Given this short timescale, it is unlikely much could actually be implemented by the time of the general election. But any reforms made would be against a backdrop of sharp cuts in public expenditure. It is possible that Whitehall departments, government agencies and local authorities might face a double dose of pressure. There will also be the risk, this being Britain, that institutional reform will be seen as an element in the solution.

The PM has announced a National Democratic Renewal Council alongside the National Economic Council he created last year. Both of these institutions are, in essence, Cabinet committees. The NDRC is intended to propose ways to reform government and Parliament. It is worth remembering that immediately after Brown became prime minister in 2007, his government published a white paper entitled The governance of Britain. This scene-setting document proposed possible reforms to the Lords, modernising Commons procedures, reducing the use of the Royal Prerogative, cutting the powers of the executive, and possibly changing the day of the week used for voting. Oddly, MPs' expenses were not mentioned as a subject for change.

And what happened as a result? Not much. Like many of the present government’s proposals, a big announcement was made but there was little or no follow-through. Take the Balance of Funding review and the Lyons Inquiry into local government finance, for example, which together took four years of work. Lyons produced a long and thoughtful report but even now, more than two years later, the government has not published a formal response. Similarly, the Eddington Review of transport has had very little impact.

But now Brown says he is serious about changing government. As part of the conditions for his survival as prime minister, he has agreed at least to look again at reforms that have long been left on the shelf. Whether the electorate will consider proposals for an elected House of Lords to be a convincing response to the ‘moats and flipping’ expenses crisis remains to be seen.

Within a few short months, the government needs to reform not only parliamentary expenses rules, but also many of the internal operations of the institution. Both of these changes will require Parliament, including opposition leaders, to assent. Even if these reforms were achieved, they would only be a tiny element in the democratic renewal process.

Commentators have rushed forward with their favoured democratic reforms. An elected Lords, proportional representation, strengthened local government and additional freedom of information provisions are among the ideas brought down from shelves. With a maximum 12 months to go until the next general election, it is almost impossible to imagine any radical changes being implemented by that time.

Brown, who is the ultimate centraliser, would have to become a very different politician to allow power to be transferred to other institutions or individuals. It is simply not in his nature, as a decade at the Treasury showed. Lord Mandelson, now in effect deputy prime minister and controller of the Cabinet, will presumably decide how much political control to release. Like Brown, he is not instinctively in favour of ceding power. But Mandelson is also the ultimate pragmatist and he is likely to steer the prime minister in the direction that is least likely to lose Labour popularity. If that meant handing over some control to others, then so be it.

The sudden flurry of concern about governmental institutions and Parliament has deflected attention from the need to start tackling the public expenditure and debt issues that have emerged since last autumn. The final year of public spending plenty is 2010/11, assuming the chancellor does not revise spending numbers down just after the general election. If the Conservatives take power, it is almost
certain this will happen. And a returned Labour government might be forced to do something very similar.

The narrative about the future of public spending is now well understood. Because of the need to reduce government borrowing and debt, the country faces up to a decade when spending will have to fall as a proportion of gross domestic product. In parallel, taxes might also have to rise. This pattern is the opposite of what has occurred from 2000/01 to 2008/09. Expect significant amounts of ‘new thinking’ about how government, agencies and councils can continue to provide decent services while their real resources decline consistently.

Radical possibilities will be considered. Some are already being put forward by think-tanks and professional associations. What they will have as a common objective is protecting the core of services while allowing government tax, spending and borrowing to be reined in. Shadow health secretary Andrew Lansley perhaps let the cat out of the bag in a recent radio interview when he admitted it was likely that departments other than Health and International Development would be likely to face real-terms cuts of 10% in the years ahead. There is no doubt his analysis, broadly supported by the Institute for Fiscal Studies, is closer to reality than the government’s efforts to imply there will be no cuts.

But even if health receives real-terms annual increases, they are unlikely to be anything like on the scale of the past eight years. The NHS Confederation has warned of an ‘unprecedented’ £15bn deficit in the coming years because of the inevitable severe contraction in its funding. The trouble is, the terms of debate between the government and Opposition are such that the public is bound to be misled. There is no doubt that senior politicians in all parties are unwilling to spell out the realities of the constraints that lie ahead. Inevitably the public will be encouraged to believe they can go on enjoying ever-higher public spending as a share of GDP with falling taxes. They cannot, because it is impossible to deliver this ‘magic’ result any longer. The party’s over.

So what are the alternatives available to councils, the NHS, police authorities and, indeed, Whitehall as they attempt to keep the wolf from the door? The first option is efficiency. There will inevitably be a big test for Whitehall. During the years when public spending programmes were growing, it was possible to produce ‘efficiency savings’ each year even though it was difficult to tell whether or not these were real. But at a time when real resources are flat or falling, it will be far easier to see if efficiency programmes are genuine. In principle, if real spending were reduced by 1% while there were 3% efficiency savings, it should appear as if there had been a 2% real increase. It is unlikely to feel like that, however.

Outsourcing will be the second option considered in the search for big savings. Some councils are already investigating this possibility, which was given a major push by the pre-Budget Operational
Efficiency Programme report. Public providers will face Whitehall pressure to achieve economies by getting big companies or consortiums to bid to take over responsibility for the provision of some or all of their services.

The problem here is that many people would, with justification, see outsourcing as ‘privatisation’ and that would make it an ideological issue, even if it produced sensible cost savings.

Shared services and/or formal partnerships are another option. In effect, this would be a softer version of outsourcing. Public bodies would get together to provide a service or back-office activity and so reduce their costs. Such arrangements already exist in some areas.

More radically, it might be necessary to consider additional charges for services. Many parts of the public sector do this already, for example, housing rents, prescription charges and care home fees. But as the spending crunch worsens, providers will doubtless look at extending the use of charges, particularly for new or non-essential provision. In vitro fertilisation already sits in this position. The NHS, having recently seen a bitter argument about the possibility of patients making co-payments for new pharmaceuticals, will want to approach this issue with care. Laws might need to be changed.

Even more radical would be the introduction of substantial means testing for what are currently universal benefits and concessions. As with new charges or co-payments, any move to means testing for, say, child benefit or concessionary fares would require central government action. There are significant arguments against increasing means testing. But if the alternative were to be cuts to the basic services of people in need, a reduction in benefits and other universal payments to the rich might seem the lesser of two evils.

There might even be consideration of a later retirement age in the public sector to take pressure off pensions. There would be several reasons for making such a change. First, it could save substantial amounts of money – possibly quickly if the age were lifted immediately. Second, it would keep people active and better off. Third, it would act as a counter to age discrimination. On the other hand, such a move would reduce jobs for new entrants to the public service.

If all else fails, public providers would be left with making across-the-board cuts to all services. Doing this would have a degree of fairness, albeit of a thoughtless kind. It would surely be better to have considered at least some of the possible ways of producing the same outputs while cutting inputs before resorting to the salami-slicer.

A return to a public service policy agenda is one of the many ideas that have been mooted to give Gordon Brown a new image. It is just possible the prime minister will attempt to initiate a Blair-type agenda for change. However, it is hard to imagine what new policies a 12-year old government could now come up with. Any further public service reform would have to recognise the extreme spending constraint services will be under from next year onwards.

Britain faces financial, economic and political pressures in the next few years. The public will emerge from recent events with different aspirations and expectations for government. Senior executives, councillors and their officials face a multi-dimensional challenge of a kind not seen in Britain since times of international conflict. Perhaps Oh what a lovely war! would be a more appropriate starting point than Evita.

Tony Travers is the director of the Greater London Group at the London School of Economics. He will be speaking on 'Crunch time – what next for public services?' at the CIPFA conference in Manchester on June 25

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