The public sector can mitigate some of the worst problems coming its way by moving to a system of payment by results
We all know the difficulties the public sector faces over the next decade. If these are poorly managed, they could cause significant damage to services. But if they are handled well, this burning platform could greatly improve the efficacy of state action.
The public sector needs to rethink the ways that services are provided and create powerful incentives to focus on the results citizens want and to encourage and reward innovation. These are the main components of a radically new approach to achieving good results, described in Better outcomes, published this week by the 2020 Public Services Trust.
At present, the government pays either staff or contractors to provide services. In both cases, the state puts in the resources in the expectation that they will lead, effectively and efficiently, to the desired results. The problem with this is that there are often limited incentives to explore the most effective relationship between what goes in and what comes out.
In Better outcomes, we argue that politicians and policy makers must shift their focus from inputs to outcomes, as the Conservatives are already doing. Shadow chief secretary to the Treasury Philip Hammond recently declared the Opposition’s intention of introducing a strict payment-by-results regime across government if it is elected next year.
The government should explore a wider range of mechanisms for achieving the results it wants. Sometimes it is possible to regulate for or subsidise them. In other cases, the best way might be to give citizens the power to define their own outcomes and choose the best way to achieve them through individual budgets, vouchers or choice mechanisms.
Often, the state will buy its services from agencies. We propose that, in doing so, it should pay for results. For example, instead of funding drug treatment courses, it should pay for each person successfully rehabilitated.
Payment on performance has enormous advantages. It means the state pays only for what it wants; it transfers the risk of provision from policy makers to providers and gives them the powers and the incentives to succeed. It also has the potential to generate considerable innovation.
Of course, it also has its difficulties, such as delays before results emerge, extraneous variables that might affect the outcomes, the potential for cream skimming and the difficulty of joining up the necessary resources. But there are solutions to many of these issues.
This system cannot be applied universally, but it can be used widely. Whichever party is elected next year should review all government quangos and agencies to assess whether their actions help produce desired results. Those that continue should progressively have their funding basis changed to payment on performance.
Grants and subsidies should also be given for achieving specific measurable and defined results, wherever possible.
The same approach can be used for the internal processes of government; we should no longer pay companies for installing IT systems or undertaking casework, but pay them when they provide defined business benefits. Contracts should be restructured to ensure that such an incentive system is practical.
We have suggested some services that consume large amounts of public funds but produce poor results, such as management of long-term health conditions, offenders and immigration. The system can also be applied to reward success in reducing illiteracy in primary schools or raising recycling rates.
As the great US political scientist Aaron Wildavsky wrote 35 years ago: ‘If policy analysts carry bumper stickers, they should read . . . “Payment on performance”.’
Lord Filkin is chair and founder of the 2020 Public Services Trust, co-author of Better outcomes and a Labour peer
www.2020publicservicestrust.org/
