This is not the time to put the brakes on reforming the state15 August 2012
Philip Hammond is one of the Government’s heavy hitters. He would have been in charge of all public spending, as number two to George Osborne, were it not for the result of the general election and the advent of the Coalition. He has made the case for reformed and smaller government, for practical rather than simply ideological reasons. Before the election, he argued that public services could cost £60 billion less every year if they were as productive as organisations in the private sector (which amounted to a saving of a fifth on current costs). Yesterday, however, he criticised the role of the private sector in delivering public services, following the failure of G4S to complete its Olympics contract. His arguments deserve attention.
His proposal was that the public sector can be more reliable than the private sector. He said that the private sector tries to provide services at a minimum cost and can sometimes fail, whereas the public sector tries to guarantee delivery regardless of the cost. He gave the example that if the public sector has to guarantee one serviceable aircraft at any one time, it will actually deploy four (along with 60 engineers), just to make sure that one will fly whatever happens. He said that he once thought that government should learn from the private sector, but now he felt it was the other way around.
In one respect he is clearly right. Some aspects of national life, of which military action is the most obvious, cannot be commissioned from the private sector (or anyone else) at the drop of a hat. Any commissioning process will take some time, whereas military emergencies can happen overnight. The state therefore maintains a serving military force at all times and is right to do so.
But even in the military sphere, the Government routinely uses private sector companies to support the Armed Forces and keep them in their state of readiness. Private sector companies provide the services’ uniforms and food. They manage the Navy’s port facilities and Army bases, deliver their equipment and train their servicemen. They even provide and maintain the warheads for the nuclear deterrent. In truth the military’s “resilience”, to use the jargon phrase for its belt-and-braces approach, is delivered through a close partnership with the private sector.
In nearly every other case, there is no need for a public sector reserve to be kept in place. That is why private companies work routinely to run prisons and support police officers in Britain, and run hospitals and schools overseas. In Germany, only a third of hospitals in its national health services are run by government. In the Valencia region of Spain, a private sector consortium runs 20 per cent of the health system, including accident and emergency services in hospitals. In Holland, the public sector runs only a third of state schools.
As a result the private sector can provide a safety net for when public services go wrong. The G4S cause célèbre has given the impression that the country needs a big public sector in case the private sector does not deliver. In fact the opposite is nearly always the case.
The NHS hospital in Hinchingbrooke in Cambridgeshire has been a problem for a decade, both financially insolvent and clinically below par. Following an open competition, including other NHS hospitals, the private company Circle was brought in to take over the hospital’s management. Six months on, the hospital has turned the corner and, remarkably, came joint top in the first regional survey of patient satisfaction. The Department of Health is reportedly looking for a private sector company to repeat this experience for the South London Healthcare NHS Trust, which has entered administration after running up deficits of more than £150 million since 2009.
It is the same picture in education. In 1999, Ofsted branded Islington’s education authority as being in “disarray”. The borough appointed a private company to take over its functions, in one of the Blair government’s most successful reforms. One year later, Ofsted reported that “the tide has turned in Islington”. Between 2000 and 2010 the number of pupils achieving the equivalent of five GCSEs at grades A* to C increased by 45 percentage points, nearly double the average improvement for all English schools.
Mr Hammond may be under the impression that every part of the British public sector is as committed and well-led as the Armed Forces. The facts unfortunately do not bear that out. Public sector workers work 36 minutes less per day than private sector counterparts, on average. They take more sick leave. They tend to be paid according to length of service, whereas the private sector tends to be paid by performance. The private sector has a tremendous amount to teach the public sector in terms of management, especially management of people.
The Government is rightly looking at how other governments deliver a more efficient and purposeful Civil Service than our own, looking in particular at New Zealand’s success. As finance minister, Ruth Richardson was one of the pioneers of that country’s approach. She has written that her reforms, for example putting senior civil servants on fixed-term contracts, were inspired by private sector experience. Mr Hammond will know that his own department, the Ministry of Defence, has long been a byword for Whitehall mismanagement, in particular through losing control of multi-billion pound defence contracts. Speaking last year, Margaret Hodge, chairman of the Public Accounts Committee, said: “The MoD must demonstrate the same discipline in its defence procurement that our Forces demonstrate in the field.”
The temptation for the Armed Forces will be to use the experience of the Olympics to argue against further cuts in the defence budget. On Monday, Wing Commander Peter Daulby asked: “If we shrink the military, do we really understand what we are losing? Look at the speed with which we pushed up the throttle” (ie deployed service personnel on the ground). In fact G4S paid for all the costs of the extra military deployment. Efforts to get value for money from defence are only just beginning, and should not end due to one example of poor private sector practice.
This is the wrong moment for ministers to apply the handbrake. The public sector is still uncertain about whether the Government really means it when it talks of reform and change. Only 9 per cent of schools are academies or free schools. Following the retreat on health reforms, the NHS is markedly more nervous of involving the private sector. G4S’s troubles were a headache for the Games, but for the opponents of change, they were manna from heaven. The big picture is that the private sector is delivering and saving money in Britain and should be given more opportunities.
Two weeks ago, Bernard Gray, the senior civil servant in charge of defence procurement, wrote a plea for change entitled “The MoD badly needs some private expertise”. He warned that the department simply does not have the specialist and commercial skills common in the private sector. Philip Hammond is right to be proud of the Armed Forces’ role in maintaining a standing defence for the nation. But that should not blind him to the real and urgent task of accelerating reform in his department and more widely.
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