Paving the way for the public service reform white paper, David Cameron is right to argue that reform should put more power into the hands of the citizen. Making competition the norm, and state monopoly the exception, is the best way to guarantee high-quality and cost-effective public services. The prime minister is also right that the burden of proof should rest with the state to justify why it should operate a monopoly, rather than on the proponents of market forces. But this is the easy part of putting reform into practice.
Whether the government can succeed in getting more bang for its buck in public services will come down to whether they can reduce central control while ensuring accountability for public money. Contrary to popular perception, it has long been recognised by Whitehall that Whitehall doesn’t always know best. The stumbling block is – as it always has been - that Whitehall signs the cheques. Devolving control to ‘the frontline’ therefore requires careful consideration of how financial accountability can be maintained even as service design decisions are devolved.
Markets provide a neat solution to this problem: they give citizens the power to choose providers, hence citizens can hold poor providers to account. This is, after all, the basis for the success of the market economy. The problem is that allowing people to choose is only one part of a real market, and the nice part at that.
Choice will only improve services if two further conditions are fulfilled. First citizens must have real options over which school to use and which hospital to go to. For that to be the case the government must be prepared to fund more schools and hospitals than are strictly necessary in order to provide the spare capacity that allows people to choose. My school choice as a parent is meaningless if all but my local school are full. But funding spare spaces during the ferocious spending squeeze ahead is challenging to say the least.
Second those institutions shunned by users must be allowed to fail and close if overall standards of service and efficiency are to rise. Allowing the poor performers to leave the market, rather than helping them to limp along with the aid of more public money, is an unavoidable part of a functioning market. Whether ministers can really wash their hands of the unpopular effects of competition, however, is a very big ‘if’.
So advocating choice and competition is the easy part of reform. The financial and political consequences are much harder to manage. And the real test will come when the prime minister has to defend the closure of failing hospitals, as he must if this agenda is to succeed.
Ian Mulheirn is the director of the Social Market Foundation
