The coalition should encourage innovation and flexibility in local services by introducing a new form of industrial policy
The prime minister has promised that the much-delayed public service reform white paper will bring ‘more freedom, more choice and more local control', to the commissioning and delivery of local public services.
Considering the Conservative Party’s deficit reduction narrative and longstanding and negative perceptions of the public sector, it is easy to see why ‘liberalising’ the public services market would be an attractive political strategy. But when it comes to expensive, people-centred services, quality is often the most important factor.
Service models that respond to the range of needs of vulnerable client groups are more likely to produce positive outcomes. Knowledge of the local context, making the most of local networks and using resources rapidly and flexibly are crucial to providing good services and capturing efficiency gains.
The coalition government needs to encourage such initiatives. An industrial policy that supports local government interventions in the public services market is needed. This is not about introducing another statist measure, nor protectionism. It is not about ‘planning’ or ‘dirigisme’. It is about capturing the link between public sector reform and economic growth. This means establishing basic principles and sharing best practice, expertise and insight. It is about harnessing the great work already taking place in local government.
The achievements of East Devon and Stroud housing teams are a case in point. In a period of greater demand and fewer resources they have processed claimants’ benefits in half the target time, freeing capacity to respond to increased demand.
Elsewhere, councils are involving service providers and users. An example of a new model for managing risk and reward is the joint venture, epitomised by Croydon’s Local Asset Based Vehicle. Similarly, Harrow is asking its large contractors to collaborate on identifying savings in the supply chain. And Kingston and Richmond are sharing frontline children’s services, an area traditionally riven by political sensitivities.
What has the coalition done to encourage such small, innovative and flexible service offerings? The white paper has yet to be published, but the Localism Bill could introduce duties on councils to include social and environmental criteria in their commissioning processes.
A more equitable sharing of risk and reward is needed throughout the supply chain, leading to more sustainable partnership models between different types of providers.
Then there is payment by results and outcome-based commissioning. Providers should always be given incentives to produce outcomes specified within the contract. However, a payment by results model can deter those with limited cash flow and access to debt finance from entering the market.
Rather than just lifting barriers to entry, the coalition should emphasise the importance of stability, market share and of reducing the exit of innovative, creative and local players. And instead of councils spending billions of pounds on their supplier base, they should be thinking how to invest in their local neighbourhoods, communities and economies.
This kind of industrial policy could institutionalise the relationship between public sector reform and economic growth, and enable local authorities to make the
most of it.
Herman Ouseley is an independent member of the House of Lords; and Dan Ebanks is a director of the public policy consultancy House
