Since the fall of the Berlin wall, the great economic debates that once divided the mainstream right from the mainstream left have largely dissolved. But as the election has just illustrated the form and funding of public services has emerged as the central issue in British politics, especially for the new centre-left. The left's vision of the good society-in particular the goals of social cohesion and a decent start in life for all-requires the public sector, especially health and education, to deliver first-class services to every British citizen. It also requires that these services remain free and funded out of general taxation.
After a patchy performance in Labour's first term it is hard to exaggerate how much is now riding for the Blair government on the promise of delivering improved services in its second term. A failure to deliver could prompt voters to ask what Labour's social democracy is for. When Labour has just won another thumping majority it may seem odd to argue that the party could quickly lose the argument over services. But it is possible to imagine a scenario in which Labour wins a referendum on the euro, burying the schism which has so damaged the Tory party, and that-in the face of public services that have not improved enough-radical Conservative arguments about vouchers, private insurance and a smaller state could become attractive to a big group of voters.
As a report from the Institute for Public Policy Research put it: "If in five years time, after a period of strong funding, citizens feel that services are still failing there could be a backlash. Those opposed to collective provision would find it easier to argue that public services are an anachronism: blunt, inefficient, restrictive of choice. If the case for universal public services cannot be won now, it could be lost forever."
This essay is an assessment of the public services debate. The first part looks at the recent arguments over the funding and delivery of services; the second part looks at the decline of the "public service class" and some of the broader cultural and economic problems associated with state provision of public services in an increasingly affluent and individualistic society.
In the run up to the 1997 election Labour promised "not the politics of a revolution, but of a fresh start." The promises were minimal. Indeed, the story of the public services in Labour's first term was set on 22nd January 1997-the day Tony Blair and Gordon Brown pledged to stick to the Conservatives' tight spending plans for their first two years in office. But everything changed one year after the election in July 1998 when Brown delivered Labour's first comprehensive spending review-the spending plans which would kick in when that two-year commitment came to an end. In a moment of madness he added up all the extra cash going in for the next three years, making no allowance for inflation and claiming the figures meant an extra ?21bn for health and ?19bn for education-an apparent 50 per cent increase in spending when the reality was nearer 5 per cent growth a year in real terms. Ministers began to talk of the "transformation" in public services, even though the extra cash wasn't due for almost a year and much of it was earmarked for specific centrally-determined initiatives. Only slowly did any of it begin to trickle down into local services that leave staff, parents and patients with the sense that things are getting better. Expectation, stoked up by ministers, ran ahead of delivery. The result was disappointment.
Can Labour deliver in its second term? In terms of money, it is starting. The second comprehensive spending review provided what the first one purported to. Since its foundation in 1948, NHS spending on average has risen by 3.5 per cent a year in real terms. But the increases have fluctuated wildly. Under the last Tory government from 1979 the spending increase averaged 3.1 per cent a year. For the five-year period from April 1999 to March 2004 it is due to grow at 6.4 per cent annually; a real increase of one third. This is the longest period of growth that the NHS has seen-all the more valuable for being laid out in three-year planning cycles rather than awarded annually, as used to happen.
Spending on education is set to grow rapidly too. Between 1979 and 1997, education spending rose by 1.5 per cent a year on average in real terms-again with marked fluctuations. Between April 1999 and March 2004 it is set to grow at 5.4 per cent. Law and order, housing and transport also see significant increases, although in real terms transport spending will still be lower in 2003-04 than a decade earlier.
Whether these sums are sufficient on their own to "transform" public services is doubtful. But there is an assumption-certainly within the services themselves-that there is more on the way from the next spending review, due in 2002. The planned increases will add 1 per cent of GDP to health spending but still leave spending short of Blair's aim of raising it to the EU average. Health officials at the time of the last spending review were saying that real increases of 7 or 8 per cent a year over several more years would be needed to realise the government's ambitions for the NHS.
On current assumptions Labour, after 2003-4, will have either to raise taxes or increase borrowing to allow spending to continue to rise faster than the rate of growth of the economy. The government could deliver larger increases to health and education by restraining spending elsewhere. But such restraint is never easy to achieve and this time round there looks to be less room for manoeuvre than in the last parliament. Defence spending has already been cut in real terms, and during the last parliament Labour achieved something that no post-war government has managed-a growth in social security spending that was lower than the rate of growth in the economy as a whole-a mere 1.1 per cent real terms increase against a 2.9 per cent rise in GDP. That was due partly to falling unemployment, partly to the reforms instituted by Peter Lilley, partly to some favourable demographics, and partly to Labour's own measures. The billions of pounds released helped to provide the increases for health and education. But spending increases in social security for the next three years are planned to run at 2.2 per cent a year against anticipated growth in GDP of 2.5 per cent.
But spending, as the Conservatives taught everyone, is only half the story. The other half is how services are delivered. The Tory years from 1987 were all about quasi-markets: the attempt to raise productivity and efficiency in publicly-funded services by subjecting them to competition. A purchaser/provider split was introduced between health authorities and freer standing NHS trusts, with family doctors becoming purchasers in their own right. In schools, money followed the pupil with good schools attracting more cash from their extra pupils and with grant maintained schools freed from local authority control and encouraged, like family doctors and NHS trusts, to compete. In health, education and local authority services, first cleaning and catering and then some professional services were contracted out. Even social service departments began to purchase from the private and voluntary sectors.
On the one hand this amounted to a devolution of power from the centre but on the other was matched by more central control. Thus education saw the introduction of a national curriculum dictating what should be taught. In the NHS, the service was given a single management structure for the first time. But ministers discovered that too much devolution of power left them not knowing what was happening in the services for which they were responsible. The result was the rise of audit and inspection-publication of performance tables, an explosion in inspectorates and target setting across the public sector. As the Conservatives struggled to control public spending, the emphasis shifted from the inputs-how much extra cash was being spent-to outputs: whether more patients were being treated, more teachers or police provided and so on.
In practice, quasi-markets delivered neither the best that was hoped from them by their advocates, nor the worst that their critics feared. In both education and health, the greater freedoms that came with them saw improvements among the best performing schools, hospitals and GPs, but little evidence of a trickle-down to poorer performers. Labour in power took the sharper edges off these internal markets without dismantling them, but also tried to move the argument from outputs to outcomes: measuring whether the extra money was producing better exam results, healthier people, or a cut in car crime. (One of the difficulties with improving outcomes is that they often require a change in public behaviour: healthier diets, parents helping with homework and so on.)
Labour created more than a dozen new inspectorates and a rise in target setting. It also reinforced a "top-down" management style. The one thing most senior Labour politicians had run in their 18 years out of power was the Labour party itself-and that had been transformed into New Labour not by a revolution from below but by an act of will from the centre: a process of command and control.
Command and control was now applied to the public services: cutting waiting lists, modernising accident and emergency departments, reducing class sizes and introducing a numeracy and literacy hour which told teachers not just what to teach but, in some detail, how to teach it. This was accompanied by a rhetoric of "not tolerating failure." This attitude squandered what should have been one of Labour's biggest electoral assets from 1997-the goodwill of a range of public servants, many of them Labour supporters. As improvements in services proved slow to materialise Labour began to blame the staff-witness Blair's famous "scars on my back" remark about reforming public services. The result has been demoralisation and resentment.
Belatedly, the rhetoric has changed. A report in January from the Cabinet Office's performance and innovation unit (PIU) warned that "delivery of public services always depends on the actions of people who cannot be directly controlled by central government, departments and agencies. Although short term results can be achieved through direction, in the long run it is more effective to motivate and empower... Excessively direct methods of government that appear to treat front-line deliverers as unable to think for themselves, untrustworthy or incompetent, undermine the very motivation and adaptability on which real-world success depends."
Command and control did, however, produce some successes. The literacy and numeracy hours improved standards in primary schools. Teachers were trained, pilots were run, the evidence base was strong, and big sums were invested. But the PIU report noted that such examples are "rare." And interestingly, outside health and education, the government has attempted more bottom up approaches. The success of the Youth Justice Board and the policy recommendations of the Social Exclusion Unit, for example, have been built by consulting those affected by the issues-not just by taking the Whitehall view.
Labour has also come to realise that what works in one part of the public services may not work in another-even within the same sector. Primary schools, for example, have proved susceptible to reform by well-funded centrally determined initiatives. But "fresh start" in secondary schools, which initially often involved parachuting in a new superhead, has proved less successful. Secondary schools, like hospitals, are more complex organisations than primary schools. (Overall, education reform appears to have been more successful than health. One explanation for this is that the education reforms have strengthened the basic unit-the school-and the key relationship-teacher and pupil; furthermore, local management of schools has provided real opportunities for teachers and heads which has helped to undercut the opposition of professional associations. In health, none of this has been the case.)
So Labour second-term rhetoric will be more sensitive to the limits of command and control. That will be welcomed by many public servants. Less welcome, at least to their trade unions, is the idea that public services can remain publicly funded but delivered by the private and voluntary sector. To a remarkable degree, this has already begun to happen. Eighty per cent of places in nursing homes are now provided by the private sector rather than by councils or the NHS: yet 70 per cent of these places are publicly funded (at a cost of some ?2.2 billion per year). Private prisons now account for around 14 per cent of all prison places. Much care for people with learning disabilities is bought in from the voluntary and private sectors. And most council houses will be in the hands of housing associations or local housing companies within a decade. A few years back, the bulk of home helps, meals-on-wheels and other care services for the elderly were provided by council staff. Last year, for the first time, more than half of such services came from the private sector. Since the 1980s, significant chunks of cleaning, catering and laundry in the NHS have been delivered by private companies.
All this started under the Conservatives but Labour has done nothing to row it back. Indeed it has introduced the private sector into areas where the Conservatives feared to tread. Twenty local education authorities now have the private sector delivering all or part of their education service. And Alan Milburn, who once told a meeting of NHS managers that he would "come down like a ton of bricks" on anyone buying operations from the private sector, signed a "concordat" in November with the private sector. The private sector is now involved in year round planning for handling waiting lists and relieving winter pressures. And primary care trusts and health authorities are free to contract with the private sector for services (some 80,000 procedures a year were already being bought from the private sector, rather less than 1 per cent of the total).
By drawing attention during the campaign to one small phrase in its manifesto, Labour leaders now believe they have a mandate to go further. "Where private providers can support public endeavour we should use them," the manifesto declared. In other words, it no longer matters who provides public services so long as they remain publicly funded: the final logic of rewriting Labour's Clause IV.
But it is not clear how far the government will or can go in private provision. The answer looks likely to be different in different parts of the public service. Gordon Brown talked in the election campaign of private management of NHS facilities yet with all staff remaining in the NHS, which might limit the scope for change. For Downing Street and individual departments the main concern seems to be freedom to experiment. There is a distrust of traditional public sector managers (one of the reasons for the battle over the London underground) and a belief that the aversion to risk-taking, the obsession with uniformity, and the bureaucracy associated with accounting for public money need not be inherent in the public sector. There is a quest for forms of public enterprise which encourage risk-taking and introduce feedback signals from the outside world, so often lacking in a traditional bureaucracy. Some of these experiments will involve new forms of partnership with the private sector and some will just make it easier for successful public sector institutions to become more entrepreneurial and to take over the management of less successful parts of the public sector. In some cases this will mean politicians having to accept much greater variety in the quality of provision (an even bigger "postcode lottery"), in the hope that this will help to raise overall standards.
Experimentation is already happening. Working Links, which runs nine of the 15 "employment action zones" is a private company, but one in which the government has a one-third stake. In Telford a successful comprehensive is franchising its expertise to other schools. Alan Milburn has talked of successful health authorities bidding to take over less successful ones. What the government is aiming for is less a privatisation of public services as a rise in "contestability"-the possibility that services can be switched to another provider if the existing one is failing.
Encouragement of public sector entrepreneurs may also lead government to ask why it thinks independent sector providers are likely to produce more innovative service delivery. Part of the reason, of course, is that they are less subject to national targets and detailed prescription from government itself.
This "micro" level reform of management and organisation also needs to be seen alongside the "macro" issue of public sector productivity, which may currently be skewed in an inappropriate way. An analysis by Anatole Kaletsky and Robin Marris in The Times (using OECD figures) showed that British public servants are now quite well paid by European standards but work a great deal harder. There are only 1.8 doctors per 1,000 people in Britain compared with a European average of 3.4. British secondary school teachers earn 21 per cent above the European average but have to teach far more hours and cope with substantially higher pupil-staff ratios. Kaletsky and Marris conclude: "The combination of relatively high pay with understaffing and unsatisfactory service in Britain's public services reflects over-zealous application of Thatcherite managerial philosophy. To treat more patients with fewer staff is, by definition, to raise productivity and this has become the criterion for success. Since the 1980s the Treasury has been freezing public sector pay bills, but allowing individual wages to rise rapidly, provided staff levels were cut. The result has been a factory-style emphasis on productivity. It eventually won the grudging acquiesence of professional bodies and unions, as it allowed their members' wages to keep rising, albeit at the cost of overwork, overcrowding and queues."
The obsession with private-sector style productivity increases has been reinforced by a trend towards over-professionalisation. A growing number of jobs in the public sector are now only open to graduates or people with equivalent qualifications-who expect decent starting salaries and a remunerative career ladder. The danger is that some of the big increases in public spending over the next few years could go into the pockets of increasingly well-paid professionals who are then condemned to a life of horrendous overwork. The alternative model is to restrain pay in favour of higher employment in the public sector-deliberately reducing productivity. And, where appropriate, using the money available to hire local people on modest salaries to help out in schools, hospitals and other local institutions.
There is, however, an obvious problem with the idea of increasing public sector employment levels at the expense of pay levels. There is already a recruitment crisis in many public services-especially in London and the south east where living costs are high. Appealing to people's idealism is no longer enough, when they can so easily find a better paid and less demanding job in the private sector. And this connects to a bigger cultural problem which has a particular impact on the public sector: the decline of the public service ethos and the public service class. For more than 50 years our public services have depended on the belief that many people are motivated by the desire to help others, and that they will accept lower financial rewards to do so. That idea seemed to die out some time in the 1980s. In a country such as Britain with a low level of religious observance and a strong belief in individual self-fulfilment, the visceral commitment to serving others seems to have become rarer. Yet that commitment is still required in many quite ordinary face-to-face public services-teaching, nursing, doctoring-which pay no better than many less psychologically demanding jobs in the private sector.
From the end of the second world war to the end of the 1970s, working in the public services carried a high status and was seen as one of the most fulfilling ways of earning a living. Most students at elite universities in that period wanted jobs in the civil service, the BBC, teaching, social work or medicine. Industry was for the solid but dull people. (The city was for public schoolboys with the right connections who were not bright enough to go to university.)
In part this reflected the leftish idealism of the time; in part the resilience of snobbery about commerce. But it also reflected a widespread, non-ideological aspiration to help other people. These attitudes faded in the Thatcher era. Financial services and commercial law started paying serious money and became more fashionable than public service. For many, especially those from the elite, teaching lost its pull. In the decade after 1983 the number of graduates becoming teachers halved.
The last 25 years has also seen the quiet death of the public service family. As recently as the 1970s there was a substantial section of the educated middle and upper middle class that would not have contemplated working in the private sector. They came from families who for generations had been in teaching, medicine, the civil service or the armed forces. Such families barely exist today and the public sector has lost a guaranteed supply of highly educated labour.
Raymond Tallis, a hospital consultant in Salford, recalls the change in attitude. "It was when the war-time generation retired in the 1970s, people stopped seeing medicine as a vocation and started to want overtime pay and so on." He has lost three younger doctors in the past few weeks, "all saying they wanted something more from life." Applications for medical school fell from 12,076 in 1997 to 9,700 in 2001.
There has been another big loss in the past 30 years-some of the most able professional women have been lured away by the private sector. Of course there are still many able women in the public sector and they tend to rise further than in the private sector. But there was a time not long ago when the glass ceiling was lower and women were a rarity in the private sector professions. The public sector benefited: many women who a generation ago would have been heads of departments in secondary schools or primary school headmistresses are now partners in city law firms or climbing up multinational corporations. What sociologist Frank Furedi calls "the end of female altruism" may be good for women but it has been another loss for the public sector.
We now live with the consequences of this inter-connecting cultural revolution: a far smaller pool of young people motivated by the desire to work in jobs where they can help others. Increasing the pool again depends not so much on public policy but on trying to shift a country's underlying values and norms.
In large parts of continental Europe the values of social Catholicism underpin welfare provision and authority figures such as teachers and doctors still command respect. But there, too, these problems are emerging. Last month Jack Lang, the French education minister, launched a campaign to hire 165,000 new teachers in the next four years. Applications have fallen by almost a third in the past ten years. Nearly half of current French teachers are due to retire in the next ten years. Lang said he was taking action to avoid "the situation in Germany, where students ignore the profession, or in Britain, which is being forced to hire foreigners."
The political problem for the British government is that making public servants more efficient has clashed with the need to rekindle the public service ethos. The managerialist approach of successive governments may seem the only rational response to a country which wants to pay relatively little tax and still enjoy first-class public services. Yet it has helped to undermine a sense of serving others which still motivates the best public servants. Public sector professionals feel squeezed between an unforgiving government and what Tallis calls the "inflamed consumerism" of some patients-"it used to be consultants and matrons that made nurses cry, now it is patients."
The problem seems particularly acute in health care, where reform has often clashed with medical values. "Triage" nursing and NHS Direct enable nurses to filter out patients that don't need to see a GP; as a result the GP becomes a specialist who only sees the people with the most acute problems. Computerised records and larger primary care centres mean that any doctor can deal with any patient, which sounds efficient but undermines what GPs were taught in their training: that knowing the backgrounds of their patients and providing continuity of care were essential aspects of good practice. Similar processes are at work in hospitals, where the demand for quicker throughput combined with improved medical technology has produced much shorter hospital stays for patients. Doctors and nurses-and their professional bodies-complain of having less and less time with individual patients. (This, again, is not just a British problem. The British Medical Journal recently noted that "doctors across the world feel like hamsters on a treadmill.")
As we argued earlier, the government is more aware of these problems and its rhetoric is changing. But meanwhile it has opened up a new front with the unions over private provision. Some of the union resistance is purely ideological. If private management can deliver a superior service for the same amount of money (including its profit) without undermining working conditions then the case against it seems weak. But union officials argue that this is not possible. They also point to some of the high profile failures with the private sector, such as the Passport Office computers, and recall, too, the first wave of the contracting out of services in local government in the 1980s, when in some towns small fortunes were made by unscrupulous local businessmen while employees got a raw deal. The dilemma for the government is how to ensure that the gains from using the private sector do not come chiefly from inferior conditions for the workforce, while still leaving room for private operators to change the way people work. Opposition to private profit in the public services strikes an emotional chord with a significant section of the public, not just public sector union activists. Despite its mandate for more public sector reform the government will have to tread carefully; this is an issue which could become the focus for a rejuvenated left.
It is notable that despite the extra cash Labour is putting into the public services the argument about how the services should be funded has not gone away, especially in the NHS. Across the political spectrum, think tanks and lobby groups continue to worry away at the issue, whether arguing for more private medical insurance, "top-up" payments and charging, school vouchers, a switch to a social insurance model, or merely a move to a hypothecated tax.
There is a good reason for this which goes to the heart of the public sector problem. As developed societies get richer-and Britain's per capita income has increased by 53 per cent in the past 20 years-people, especially those on middle and upper incomes, tend to want to spend more and more on services such as health and education. As long as those services are mainly provided by the state and as long as Britain remains a relatively low tax country (with public spending accounting for 40 per cent of GDP compared to around 50 per cent in much of Europe and 30 per cent in the US) then dissatisfaction seems inbuilt. The most common response is simply to spend more on those services in the private sector. The number covered by private health insurance has risen from 2m to 7m in the past 20 years. And while the number of children at private schools remains 7 per cent, nearly half the population aspire to private education for their children and a large but unknown number already "top-up" state schools with private tutors to help pass exams.
The underlying issue is how to combine public spending and private discretionary spending on health and education in a way which seems fair, and does not isolate public provision as a rump service for the poor. For now, Labour has nailed its colours to a purely tax funded service, at least in health and in primary and secondary education. In order to make them work better it is putting in more money and experimenting with more diverse forms of delivery. This greater "fuzziness" in the provision of services will, it hopes, help to break down the barriers between the public and private sectors and stop people deserting public for private. It is a step towards the more mixed systems found in continental Europe.
If it does not work there are three options: either increase tax rates substantially; or go to a fully fledged private welfare system with special provision for the least well off; or introduce more fuzziness into the payment for services as well as their delivery-in other words more private top-up payments for the use of public services. The latter is, again, more common in the rest of Europe where even in social democratic Sweden people have to pay to visit a GP. There are complex issues surrounding such top-up payments, whether they should be universal or means-tested and so on. But Labour has already accepted the logic of the means-tested "top-up" in charging student fees.
It may be a decade or more before we know whether Labour's current experiment has worked. It will take years of investment to produce notable improvements in services: especially when the government is likely to be swinging between, on the one hand, promoting the decentralisation of initiative and, on the other hand, trying to force through uniform national targets. Creating a new public service ethos will take even longer and may be impossible.
Politicians are themselves public servants. One of Tony Blair's most attractive qualities is that he has retained his sense of public duty, of the commitment to serving his country which attracted him to politics in the first place. Perhaps he needs to shape a new narrative of public endeavour-one which can combine market-type flexibility with distinctly public sector answers and methods. For if he fails to win this argument his second term could be overshadowed by a conflict with people defending an equally passionate commitment to the ideals of public service. He will not need reminding that the last time a Labour government lost power it was to the sound of battle with the public sector unions.
