Book: Motivation, Agency and Public Policy
Author: Julian Le Grand
Price: (Oxford University Press, £25)
This book is significant on two counts: for what it says and for who is saying it. Motivation, Agency and Public Policy is a compelling argument for the denationalisation of public service provision, written by a leading academic of the left who is now working in 10 Downing Street. His book, and his appointment, herald a major step forward in the reform programme of this government - perhaps.
Motivation, Agency and Public Policy brings together various ideas Le Grand has put forward in recent years under the umbrella of a central conceit. The welfare state, he argues, was built on the false assumption that all public servants were "knights" (meaning able and altruistic), all members of the public were "pawns" (passive, ignorant and self-sacrificing). In fact, as he points out, public servants often behave like "knaves" (selfish and short-sighted), while consumers can, and in the case of the middle classes often do, behave like "queens" (autonomous and demanding). The object, then, is to design a system which brings out the knightliness of the staff and the queenliness of the consumer, in a way which overcomes the persistent inequity that has marked the public services since their foundation.
From the 1940s to the 1980s, argues Le Grand, both the NHS and the schools system were built on what he calls the network or trust model. The central state owned, funded, and monitored the whole system, but local professionals were allowed a considerable degree of discretion in how they managed matters at the front line. Indeed, the socialism of the Attlee settlement enshrined a highly paternalistic system, placing great authority in teachers and doctors - or more precisely, in headteachers and hospital consultants. The consumer was a pawn not just in the hands of Whitehall but also in those of the grand local professional.
Since the late 1980s there have been two countervailing forces undermining the network model. One is the gradual loosening of functional ties between the centre and local outposts - beginning with the decentralisation of the NHS through the internal market, and of education through local management of schools and grant-maintained status. The other, countervailing tendency - greatly exacerbated since 1997 - has been a tightening of the non-functional ties between the centre and the outposts. There has been what amounts to a major loss of trust in the benevolent paternalism of teachers and doctors. Devolution has been accompanied by increased regulation and inspection.
These rival tendencies help account for our perplexing political discourse. The left, worrying about the structural loosening, harps on about the "creeping privatisation" of the public services. The right worries about the mounting burdens of bureaucratic inspection and regulation, and complains that New Labour is even more centralist and interventionist than old Labour. The two complaints make effective allies, as last November's Commons debate on foundation hospitals demonstrated. Conservatives who felt the proposal did not go far enough to set hospitals free from Whitehall, united with Labour backbenchers who felt it went much too far; together they almost defeated the government.
Of course, the Conservatives (as Le Grand implicitly acknowledges) are right. Inspection, assessment and regulation were designed in the 1990s in order to ensure minimum service standards and to enable informed consumer choice. Under New Labour they have become the primary instruments of central control. The effect has been to demoralise the workforce to the point where we are seeing a haemorrhaging of professional talent from the public sector, and a return to the union activism of the 1970s and 1980s. As Le Grand says, "if people are treated as though they need to be whipped to achieve results, then they may behave as though they do need to be."
Le Grand is enthusiastic about the Conservative reforms of the 1990s. He sees "tremendous advantages" in GP fundholding - the system whereby local doctors controlled the budgets of their patients, purchasing hospital and specialist care on their behalf - and is also largely positive about the experiments in choice and diversity in education. He shows that the internal market in healthcare was effective in terms of both cost and patient responsiveness on the part of hospitals - and that these benefits were achieved without a loss of equity. In education, he cites evidence showing that competition between schools drives up standards, and shows from US examples that fairness is not sacrificed to excellence. The use of vouchers - transferable school payments which give parents effective choice between schools, including private ones - does not damage the rest of the system. Any "cream-skimming," whereby good schools attract the best pupils, is offset by the competitive pressure on the other schools to raise their game.
On recent government policy Le Grand has less cause to be enthusiastic. Primary care trusts (PCTs), the next generation of GP fundholders, are better than their Tory predecessors in the sense that all GPs, not just the 50 per cent who had volunteered for fundholding status by 1997, are part of the system. But, crucially, they allow less patient choice. "It would be better," says Le Grand, "to allow patients to choose their own PCT, as they could choose their fundholder." Now that Le Grand is in No 10, we look forward to this as the next installment of Labour policy.
In education, though Le Grand does not say so, New Labour has taken larger steps backward (the abolition of grant-maintained status) than forward (the extension of the quasi-independent technology colleges - now city academies - and specialist schools). There have been 16 major policy changes since 1997, but still no meaningful diversity in the system or choice for parents.
Le Grand makes only a passing mention of higher education and university top-up fees. In a sense, universities are the public service most subject to "middle-class capture." Making students pay their own way, however, will hardly prompt greater participation by the poor. Le Grand's answer comes in the form of a general proposal for helping school leavers make a good start in life.
There is now widespread support for the principle - once a Tory soundbite - of creating a "property-owning democracy." The idea is that to alleviate poverty we must to do more than provide people with an income. What is needed, Le Grand argues, is a transfer not of income but of capital. He suggests a grant of £10,000, to be paid at 18, with specific conditions of use attached (a much more generous version of the "baby bond" that is being introduced by this government). The grant is to be financed out of inheritance tax. And here, at last, I find myself in disagreement with the No 10 adviser. Inheritance is one of those touchstone issues which prove that left and right are still meaningful terms. The left thinks all wealth ultimately belongs to the community. The right thinks it belongs to the people who made it.
Le Grand wants to triple the inheritance tax-take (from £2bn to £6.5bn) to finance his grant. But almost everyone who has saved money to secure their children's future will recoil from this idea. Indeed, the central fault of the proposal lies in its own unintended but predictable consequences. Imposing punitive taxation on private bequests to fund universal public bequests would be to launch a steep spiral of diminishing returns. We have already seen a sharp decline in the proportion of household income put away for the future: down from nearly 10 per cent in 1997 to under 4 per cent today. The hypothecation of inheritance tax would further erode the incentive to save.
Hypothecation - earmarking a specific tax to a specific spending commitment - is also Le Grand's prescription for the NHS. He suggests linking income tax directly to the health service. It is, at least, more difficult to erode the incentive to make money than the incentive to save it. But hypothecation reduces the flexibility of the treasury, especially in times of boom (expanding revenue and contracting welfare bills) and bust (vice versa). Le Grand thinks this a price worth paying, the treasury is unlikely to agree. Even worse, if hypothecation is properly implemented it subjects the service in question to a fluctuating supply of funds as the tax-take rises and falls. Le Grand's proposal of fitting the spending to the tax take over the economic cycle rather than yearly makes the hypothecation so attenuated as to be meaningless.
The difference between Labour and Conservative on the NHS is that Labour believes in setting a total amount, or upper limit, for health expenditure and Conservatives believe in just setting a lower limit. We cannot know the needs or resources of individual patients but we can know the amount needed for the essentials of healthcare. Health finance should not all come from taxation - still less from a single defined tax. The argument for hypothecation, argues Le Grand, is that it will "make citizens aware of the cost" of the service they receive. A "patient passport" - outlined recently as Conservative policy - will also do that, and do it at the consumer's end of things, not the Inland Revenue's. A large tax take, as we are learning, does not necessarily translate into more activity at the front line. What is needed is a direct grant to the consumer, funded out of general tax and redeemable at any NHS hospital. If patients want to go private, and so release capacity in the public system, they should be helped to do so with a portion of the money they are saving the NHS.
This is not an entertaining book in the manner of The Five Giants, Nick Timmins's superb history of the welfare state - but it is an important one. It is also well written and free of jargon. And given its author's current position, what of its politics? Le Grand's appointment shows where New Labour would like to go. The problem is that the troops are not following. After nearly seven years in office, New Labour's achievements remain largely rhetorical. Rhetorical achievements are not unimportant. New Labour has annulled the postwar consensus on health and education and opened the debate - lately rebranded the Big Conversation - on how best to move to a properly liberal welfare society. But if the government, in the short time that (I hope and trust) remains to it, is to make its mark on the domestic history of this country, we need, in the words of Elvis Presley, a little less conversation and a little more action, please.
