Public service and governance reform post 2015 election

Source: PSE - Oct/Nov 2015

Chris Painter, emeritus professor of public policy and management at Birmingham City University, and a member of PSE’s editorial board, poses fundamental questions about the likely impact on public services and governance of the first UK majority Conservative government to be elected for 23 years.

Virtually every test of opinion during the May general election campaign predicted a ‘hung’ Parliament. Much to the embarrassment of the polling industry, the outcome was a Cameron government with a slim overall majority. What are the implications for ongoing programmes of public service and governance reform of a single-party Conservative administration, replacing the Liberal Democrat Coalition of the preceding Parliament?

Changing fiscal context

George Osborne as chancellor has presented three different public spending scenarios to the Commons in less than 12 months (the 2014 autumn statement, pre-election budget and post-election budget). The July 2015 budget signalled a slowing of the pace of additional welfare (social security) cuts (forming part of the controversial Welfare Reform and Work Bill) and was widely interpreted as a scaling back of departmental cuts compared with those of earlier plans.

This reflected higher projected public borrowing, tax increases not hitherto part of the Conservative strategy for deficit reduction and a Treasury-inspired accelerated programme of state-owned asset sales. The path to a budget surplus consequently looked likely to follow a smoother trajectory over the next five years than previously envisaged, with achievement of that target put back by another year to 2019-20.

Nonetheless, in preparation for the Spending Review due in November, unprotected departments were asked to model eye-watering real-terms savings of 25% and 40% by that target date (including asset sales and outsourcing of services), replicating the methodology used during the 2010 Spending Review. It remains to be seen whether cuts of that magnitude will actually materialise – or if this is simply the Treasury’s opening salvo in negotiations with Whitehall departments.

The ultimate outcome is anyone’s guess, given that the current chancellor has had more spending plans in a year than most governments have during the entirety of their term in office! But prospects in the new Parliament for another large fiscal adjustment present formidable challenges for public management, including how continuing strict restraint on public sector pay will impact on staff morale, retention and recruitment. The upshot is that the UK will fall well down the European league table for public spending as a proportion of GDP.

Structural shifts

So Osborne remains fundamentally a fiscally-conservative chancellor, structurally moving to a smaller state while offending free-market principles through his interventions in the labour market. Agasisti, in the November 2015 edition of the Public Money & Management journal, discuss different models for addressing problems of public financial sustainability. They firmly place the chancellor’s 2010 Spending Review (so by extension the 2015 one) in the ‘strategic’ rather than more parsimonious ‘technical’ category, as such re-drawing the composition and boundaries of public spending.

Osborne is, moreover, committed to a new fiscal settlement entrenching ‘sound public finances’ through a budget surplus rule, embracing even borrowing to invest – that is, other than in ‘exceptional’ circumstances. Of course, much depends on how that is interpreted. There may also be an element of posturing as Osborne likes to wrong-foot opponents, who then expend considerable energy side-stepping the political traps (it is difficult to avoid seeing traces of him in the fictional character Congressman Frank Underwood in the re-make of House of Cards…).

But if taken at face value, this stance reverts to economic orthodoxies of the 1930s and financial principles practised by William Gladstone back in the 19th century. It represents a degree of inflexibility all the more surprising for the continuing fragility of the global economy. Allusions have been made to Mr Micawber in Charles Dickens’s David Copperfield. Perhaps a more apt analogy from the same stable would be Thomas Gradgrind in Hard Times!

So, Osborne was turning back the clock on using a prime instrument for economic management. Monetary policy has its role to play, but alongside – not instead of – fiscal policy, unless serious distortions such as asset bubbles are to occur. Historical evidence too charts a striking correlation between a smaller state and greater social inequality, which accumulating international data suggests can itself be a drag on economic performance.

The chancellor cited Canada, facing its own federal parliamentary elections mid-October, along with Sweden as suitable role models for strong public finances. To commit the sin of anecdote, my wife and I recently visited Vancouver. Appalled by the number of citizens living on the streets, some physically disabled and others evidently mentally ill, she was tempted to write to the Canadian prime minister to express her dismay. It is a country which, in any case, is now in recession. As for Sweden, it has been falling down international education league tables, albeit doing better when measured against some other international performance indicators.

This is only the latest example of UK governments obsessing about single economic or financial variables, beginning during my adult life with the balance of payments in the 1960s, onto the money supply in the 1980s, then fixation in the 2010s with the budget deficit. They were all second-order symptoms of more fundamental underlying problems.

c. John Stillwell

Reform continuity

Against the background of this evolving financial framework, there is ministerial continuity in the government departments spearheading the main public service reform projects during the Coalition years which, in any case, had been dominated by Conservative Cabinet appointments.

Nicky Morgan had been made education secretary in good time for the general election, to bring a more emollient tone to Michael Gove’s reforms. Her Education and Adoption Bill removes ‘loopholes’ that can be used to delay the pace of the academisation championed by her predecessor. Free schools will continue to be established in tandem, irrespective of growing concern about the performance of the educational innovation providing a prototype for this programme – Sweden’s friskolor.

Despite this preoccupation with school structures, the most revealing statistic is that spending on education as a proportion of GDP has fallen in the UK from 5.95% to 5.28% since 2010, notwithstanding the importance of human capital to success in an increasingly globalised economy.

Jeremy Hunt was re-appointed as health secretary. The additional £8bn committed to the NHS by 2020 is dwarfed by the magnitude of the productivity improvements required if the health service is to return to a sustainable financial position, let alone calculating the knock-on effects for it of a chronically under-resourced adult social care system or of reductions in public health budgets. Something eventually has to give.

Theresa May too, one of the more successful reforming ministers of the last Parliament, retained her position as home secretary. She has been criticised, however, for failing to construct the evidence base necessary for evaluating the consequences for police forces of (ongoing) cuts to their funding, or indeed of the impact of cuts made elsewhere on police workloads.

Iain Duncan Smith carries on as work and pensions secretary, regardless of the problems that have beset his flagship project, universal credit. Its roll-out has been much slower than anticipated and development costs written off to reset the programme, with a recurring pattern of strategic over-reach and implementation deficits (whatever became of the constitutional convention of individual ministerial responsibility?). Further welfare cuts unveiled in the July 2015 budget undermined one of universal credit’s central objectives, ‘making work pay’, reducing the threshold at which benefits are withdrawn and speeding up the pace at which this happens.

The new kid on the block is Michael Gove, in his latest incarnation as lord chancellor and justice secretary. He appears intent on putting reform both of the courts and prisons centre stage in the new Parliament, with cuts to the legal aid bill made by the Coalition jeopardising access to the system for many victims of injustice.

The devolution conundrum

We do have a new secretary of state at the helm of the Department for Communities and Local Government, Greg Clark (pictured), a more enthusiastic exponent of devolved powers than his predecessor. That is just as well, given the political capital the chancellor has invested in this cause, with the bar having been raised by the Greater Manchester deal last autumn. Many more bespoke deals are in the pipeline for combined authorities in city-region and county areas across the country (igniting some local territorial disputes!). They are being given legislative force by the Cities and Local Government Devolution Bill, enabling debate around this piecemeal approach to local devolution.

This is allied to George Osborne’s vision of a ‘northern powerhouse’ to geographically re-balance the economy. However, hoist with his own petard because of the rigidity of the fiscal framework to which he is committed, generating sufficient infrastructural funding to turn that concept into reality now partly depends on investment attracted through links forged with other states, notably China. Some vital rail electrification projects have already been delayed. Setting up a National Infrastructure Commission sends the right signal. But whatever financial wheezes are dreamt up for accessing alternative domestic funds, tight fiscal rules mean that augmenting public investment requires even more compensating cuts to unprotected departmental spending budgets.

Local devolution does hold the promise of more creative and cost-effective solutions to policy challenges. Yet, further financial pain driven by the chancellor’s second phase of austerity means that local government circles are apprehensive about a potential poisoned chalice, without significant additional fiscal autonomy. The announcement that business rates will revert to local authority control by 2020 is clearly a step in that direction. But there are five more years of cuts in the central support grant before then, whilst capitalising on this new fiscal power will be constrained in a number of ways and raises serious distributive questions.

At variance too with the spirit of devolution is insistence on one particular form of governance, namely directly elected mayors. And despite devolved responsibility for health forming part of the Greater Manchester deal, health ministers are still claiming the right to intervene should circumstances warrant it. Whitehall’s centralising instincts therefore continue to exhibit themselves. Nonetheless, central government has its own legitimate electoral stake in policy outcomes and pressures to respond to public expectations. It is a matter of achieving an appropriate balance, as I have argued in an earlier edition of PSE.

What is most perplexing is a lack of consistency taking public service and governance reform in the round. The Treasury alighted on general competence place-shaping decentralisation. The Home Office by contrast preferred single-service elected officials in the form of police and crime commissioners. Meanwhile, education reforms proceeded to marginalise elected local government, bringing calls for restoration of its strategic roles in dealing with school under-performance and in planning for expanding school populations.

Health reform during the Coalition years lauded the virtues of public service markets and competing providers. Yet NHS England is now putting in place ‘success regimes’ to strategically re-wire the institutional architecture and reconfigure care networks in areas where services are struggling, as well as more widely promoting a collaborative ethos to pool expertise in an acute hospital sector being re-shaped around different specialist treatments.

c. Dominic Lipinski

Policy processes

These contradictions are not unrelated to Whitehall processes. Many policies owe their origins to blue-sky output from think-tanks, including those set up by ministers who then subsequently draw upon their findings, as Iain Duncan Smith has done with the Centre for Social Justice. Another tempting source of ideas is eye-catching initiatives transferred from other jurisdictions. But they must be tailored to suit different contexts and outcomes given sufficient opportunity to stand the test of time before adoption (the free schools programme comes to mind).

Pilot schemes frequently become settled programmes before being properly assessed, often driven by pressure of events (as seen recently in migration policy). Monitoring systems to establish whether intentions are being achieved too often lack necessary rigour.

If independent evidence is unhelpful to ministerial interests then findings and methodology are discredited. Yet, it is perfectly acceptable for those same ministers in their own defence to make dubious causal connections, or not compare like with like to put favourable glosses on policy successes (practices prevalent in relation to education and welfare reforms). Some have been rebuked by the UK Statistics Authority for  the misleading presentation of data. If all else fails, the fallback is to move the goalposts or conjure a problem out of existence (as in ceasing to define child poverty with reference to internationally accepted measures).

Independent commissions or panels too are misused to kick sensitive issues into the long grass, provide political cover for controversial changes, or to help dig a government out of a deep hole. Even many constitutional changes are now driven more by partisan considerations than consensual deliberation.

There is, moreover, growing incidence of policy contortions. Assets were to be sequestrated from independent not-for-profit organisations by extending the right-to-buy to tenants of housing associations. Apart from repercussions for their future organisational status, it disregarded evidence of the high risk of further depleting a social capital housing stock already in short supply. A voluntary accommodation with the National Housing Federation offered a way out, but with statutory action kept in reserve should there be infringement of the basic principle. Or consider the electoral commitment made to sustain pensioner concessions. That social responsibility is then farmed out to third parties; the BBC in the case of free TV licences for over-75s.

So, it is little surprise that consistency in public service and governance (or for that matter social policy) reform is such an elusive quality, let alone successful accomplishment of outcomes.

Challenging questions

A number of related questions therefore arise from the ongoing climate of fiscal austerity. Can there be a quantum leap in the creativity with which public resources are managed to realise outcomes that only public policy interventions can catalyse? Themes underpinning the autumn Spending Review include innovation, collaboration (as well as competition) and productivity improvements through radical devolution. But whilst it provides a vehicle for further strategic re-prioritisation, will those broad criteria readily translate into the radical service redesign required by the cuts?

Does a structural shift in government spend herald a smarter or hollowed-out state lacking capacity for rising to future economic and social challenges? And can coherent principles be devised for public service and governance reform that amount to more than rhetorical flourish?

That links up with the quality of policy analysis and evaluation. Hopes back in the 1960s and 1970s that rational appraisal could become the hallmark of public policy look naive in retrospect. But notwithstanding a highly pressurised environment, the flimsy foundation of much of what passes as ‘sound’ policy – too often plucked metaphorically out of the political air – remains of real concern when so much is at stake!

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