The public debate about how to achieve better public services has unhelpfully been dominated by opposing ideological stances which state “private sector good, public sector bad,” argues Quentin Maxwell-Jackson, author of a new report on the subject.
Ed Miliband chose to launch his 2015 election campaign by vowing to “stop the tide of privatisation of the National Health Service”. He said that increased privatisation would be a “disaster” for the health service so a Labour government would impose a five per cent cap on the amount private companies can make on providing NHS services to ensure that “patients are always put before profit.”
David Cameron seemed to take a more balanced stance when he launched the Open Public Services White Paper in 2011: “It shouldn’t matter if providers are from the state, private or voluntary sector – as long as they offer a great service.” But three years later this even-handed policy appeared to have been ignored when the East Coast Mainline franchise went out to the market without a public sector option, even though the previous public sector operator had been recognised as “best in class”.
In a recent paper I authored for CentreForum, we found that whether a service is delivered in the public or private sector is not the important factor in success or failure. Drawing on case studies, we identified factors, common to public and private sector service providers alike, which had been responsible for success or failure.
Sadly, there are numerous examples of public services failing – both in-house and outsourced.
One public sector case study was the UK Borders Agency (UKBA) which was set up in 2008 to get a better grip on immigration administration. UKBA was scrapped five years later because of a continued backlog of cases (310,000 cases by 2013), lack of clarity over migration figures and a “closed and secretive” culture which resulted in performance that Home Secretary Theresa May dismissed as “not good enough.”
One of the examples of outsourcing failure was the 30-year contract Transport for London let to the Metronet consortium for infrastructure modernisation of the London tube in 2003. Four years later Metronet had entered administration leaving the taxpayer with losses of up to £410 million.
Reasons for failure
The reasons both services failed were similar.
Managers did not have access to good quality information about performance, and outputs were not always clearly defined, so managers could not take steps to improve things until it was too late. Risk assessment and risk management were weak. For instance, the Metronet contract was not robust enough to ensure that consortium shareholders picked up the costs of failure, so the taxpayer was left with the bill. Much was left to chance by managers in both cases, with Metronet’s operations something of a “black box” – a complex system whose internal workings are not readily understood -to its government client. UKBA management failed to roll up their sleeves and get to grips with failing processes and procedures, and their lack of understanding of how badly the agency was performing, and what needed to change, contributed significantly to the agency’s poor performance.
There are many examples of successful delivery of public services, but, unlike failures, they do not usually hit the headlines.
We looked at the Department of Education’s outsourcing of administration of the Teachers’ Pensions Agency to Capita which achieved the targeted cost savings of 40 per cent while at the same time improving service quality significantly. It had previously taken two weeks to answer members’ queries, but the response time was reduced to a matter of minutes under the outsourcing contract.
In the public sector we were impressed by the performance of Directly Operated Railways (DOR), which stepped in to run the East Coast Mainline when the National Express franchise collapsed in 2009. DOR was rated as “Best in Class” against many quality measures and most efficient rail franchise by the Office of Rail Regulation. DOR made significant franchise payments back to government – £203 million in 2012-13, the highest for any single franchise.
Again, we found that the reason service providers had succeeded was common across the public and private sectors.
Each of the services was well managed, using appropriate information and performance indicators to assess productivity, quality and customer feedback. The threat of competition was a factor in motivating good performance in both cases, since there were other qualified suppliers who could administer teachers’ pensions or operate rail franchises. The size and scope of the services was also manageable and specific, focusing on required skills and capabilities which were clearly defined.
We identified some lessons for commissioners of public services from our findings.
Although public services are often very large in scale, this does not mean they should be designed to be unnecessarily complex. We noted that one of the reasons for the Rural Payments Agency’s sustained failure over many years was that the government chose to implement an unnecessarily complicated payments system. The service has to be clearly defined, with sufficient timely information about performance available to managers who are prepared to act if necessary.
Commissioners need a critical understanding of how alternative service providers propose to deliver value – this must never be left to trust. Other key factors include appropriate governance structures, a realistic assessment of risk allocation and a good understanding of the market for service provision.
Ideological approaches which vilify public or private sector providers are lazy, based as they are on wishful thinking or prejudice. It takes hard work and getting into the detail to understand public services, who is in the market to deliver, and what makes for success.
Unfortunately the most wasteful aspect of ideological prejudice is that past lessons do not get learned – the same mistakes are made over and over again.