Public sector markets are here to stay. But a series of high-profile failures demonstrate how government needs to be a lot smarter about the way they are rolled out.
NHS Direct recently announced plans to pull out of all 11 of its regional contracts providing telephone triage services for the government’s new 111 non-emergency NHS number. The Royal College of Nursing, the British Medical Association and much of the press lined up to denounce the ‘chaos’ and branded the policy a ‘failure’.
This isn’t the only negative headline that has been generated by public service markets recently. Justice Secretary Chris Grayling recently attacked G4S and Serco for allegedly overcharging taxpayers for the tagging of non-existent offenders. And, not too long before that, abuse of patients at Winterbourne View, a hospital operated by a private company, cast serious doubts on the government’s ability to act on warning signs and take appropriate action to address them.
These high-profile stories of failure spread fear that markets can never work in public services, but they can – and often do – if government gets it right. This requires thinking much more systematically about how to design better markets in the first place.
In a recent report, the Institute for Government argues that there needs to be genuine competition for public service markets to work. NHS Direct’s decision to withdraw from the market does not necessarily mean that ‘chaos’ will ensue. Unless any of the other providers pull out, you could argue that the market has simply ejected an inefficient provider – a sign that the market is, in fact, ‘healthy’. In the meantime, NHS Direct has agreed to operate the services until replacement providers are found.
When there is genuine competition, the failure of one provider can open the door to success for another. As the Southern Cross care homes case demonstrated, as long as the contracts can be provided at a profit, they are likely to be taken on by other, more capable providers.
So providers pulling out shouldn’t automatically be considered a ‘failure’ of the public service market, but there are still reasons for concern. The Institute for Government’s recent report identified weaknesses in government’s ability to design and manage effective public service provision in employment services (the Work Programme), care for older people, probation services and secondary education.
We found that competition is not sufficiently prioritised. As academy chains expand across the school system, many are focusing on specific parts of the country. This not only undermines parental choice, but could lead to massive service disruption if one of them were to fail. The problem is that the Department for Education does not appear to be monitoring levels of provider competition, and has yet to develop a proportionate failure regime that could anticipate and reduce the risks around provider failure.
It’s noticeable, too, that some large providers now have the potential to dominate entire areas of service provision in particular regions. The problem, again, is that there appears to be no one in government who can provide facts and figures on whether this is happening or not.
Across all four sectors examined, ‘gaming’ was a recurrent problem. In the Work Programme, providers often ‘park’ users with complex needs and ‘cream’ those who are easier to support, and therefore more profitable to serve. The reasons for this are complex, but include providers bidding aggressively for available contracts, to the point where they have to cut corners to break even.
This ‘must play’ mentality has resulted in many providers offering drastically reduced services to the hardest-to-help jobseekers.
This behaviour is by no means unique to profit-making organisations. In education, we have always had ‘teaching to the test’ and exclusions of tough pupils, but we found that schools under threat of closure were even more likely to engage in such practices.
There is, however, some cause for optimism as government is getting better at managing markets. The Department for Work and Pensions has introduced ways of penalising underperformance in the Work Programme – either through reduced workload or outright contract termination.
Probation trusts, meanwhile, have collaborated with local partners to co-commission services such as health, employment and housing support that together can help reduce re-offending. And, following the collapse of Southern Cross Healthcare, the Department of Health has begun to develop a systematic approach to anticipating and managing failure of large care providers.
But before creating or expanding public service markets, these problems need to be addressed. Our report made a series of urgent recommendations including:
• a statutory obligation to publish a ‘competition impact assessment’ to be conducted by the Office of Fair Trading (or a similar body) before implementing outsourcing programmes worth more than £100m;
• full transparency on the contracts, income, performance and subcontracting arrangements of all private, voluntary and public sector service providers. We are pursuing this recommendation with the Information Commissioner; and
• more thorough advance testing of new market models, using high-powered commercial advisory boards (excluding those with a specific commercial interest), and scenario and simulation exercises to predict potential pitfalls.
With these conditions in place, providers exiting the market need not be a negative headline, but a sign that the market is in fact working.
Nehal Panchamia is a researcher at the Institute for Government and a co-author of the report Making public service markets work – an in-depth analysis of four public service markets. It is available from: www.instituteforgovernment.org.uk/publications
This opinion piece was first published in the September edition of Public Finance magazine
