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Public Services

My Lords, I too am grateful to my noble friend Lady Walmsley for tabling this debate because it gives the House an unusual opportunity to look at an issue that is cross-cutting and not driven along departmental boundaries. But it is something which is of increasing importance to Parliament, to the Government and to the public. My experience is in local government. I was a councillor for 14 years, a senior member of the Local Government Association, served on the board of the Audit Commission, and since 2000 have spoken on local government affairs in this House. In recent years I have also worked with two private companies, Anite and Atkins, to develop their thinking on the relationship between the public and the private sectors. It is of course a matter of interest to Parliament and to the Government how local authorities determine their relationship with the private sector, partly because of the lessons which central government can learn from local government and because from compulsory competitive tendering through to the more recent Gershon requirements on local government to make efficiency savings, the Government have made local government’s relationship with the private sector their business. It used to be very simple. The public sector employed people who provided services. The compulsory competitive tendering drive of the 1980s led to a quiet revolution. What we now have is a patchwork of arrangements between the public and the private sectors, and I can say at the outset that I have absolutely no problem with that. I can see many ways in which great synergies can be created when the public and private sectors work together properly. The voluntary sector has also changed enormously during this time. Large organisations such as Help the Aged and WRVS are providing services which are commissioned by local authorities and managed by contracts. However, I want to use my time today to reflect on a few lessons that have been learnt by local government over the years. First, I shall say a few words about markets. We talk blithely about market forces, but they are complex and change constantly. I am not confident that either local or central government fully understand how certain markets operate when it comes to the detail, or how markets will change as a response to certain interventions by the Government. I shall give an example. Compulsory competitive tendering certainly caused a massive shake-up of provision and often enabled huge cost savings to be made. It was heralded as a triumph for the private sector. But subsequent academic studies have never really established whether it was because the private sector was inherently cheaper or whether it was the tendering and contracting processes which actually made the difference. However, what was really never thought through was this: once an in-house bid had been lost by a local council, the in-house body had nowhere else to go. It could not bid for work anywhere else and therefore it would close down. That meant that the second time around, there was no in-house bid and competition was reduced. So the cost savings tended to be made only on the first round of bids. But local authorities are always under pressure to make more savings. What happened then was that councils would often work together. It sounds as though it makes sense: have bigger contracts and create economies of scale. But in many sectors the smaller companies simply could not provide on that sort of scale and so they did not tender. Twenty years on, the result of this process is that in certain sectors—I cite particularly the waste and the bus industries—there are on the whole relatively few very large operators. Once the market is concentrated in the hands of a few providers, the benefits of competition are much reduced. Councils are now struggling to continue to reduce the costs of contracts. The process is continuing today. Evidence from the residential care sector shows that contracts are now being constructed in such a way as to deter smaller providers. Earlier this year the CBI produced a report on the commissioning of local public services which emphasised the need for a diverse range of providers in order to increase value for money and improve service quality. Many councils stimulate local markets through the provision of information about future work flows and by advertising contracts more widely, but it would be useful if central government could commission more research in this area. Perhaps they need to understand a little more the implications when they insist on blunt efficiency saving targets from local authorities. It has become clear that intelligent commissioning requires a number of components. The nature and variety of the services to be commissioned, and the range of service users, have to be well understood in order to enable the council to determine the correct range of organisations which can deliver them at an affordable price. Huge skill is needed in constructing a tendering process which ensures that a variety of organisations are indeed able to bid. Recent academic research suggests that for markets to work in a more positive way, there needs to be a clear and non-doctrinaire attitude to commissioning, a genuine understanding of the market, good procurement practice and that the commissioning organisation must have the right capacities and skills. Here again there may be a role for central government, particularly in assisting smaller councils in this area where they may not have the relevant skills. I want to turn next to monitoring. The original Nicholas Ridley view was that councils would meet just once a year and set the contracts. Indeed, inthe 1980s and 1990s, some Conservative councils outsourced pretty much all of their services and reduced staff to a minimum, which resulted in much-heralded savings to the taxpayer. Unfortunately it became clear over time that they simply had not left themselves enough capacity to monitor the contracts thoroughly, ensure that there was proper compliance and deal with problems when they arose. We then saw a recreation of a corporate centre in many councils. There are limits to the paring down of central staff that can be done. As the noble Lord, Lord Warner, said, it does not really matter what sector the providers come from; they need to be properly monitored, and that requires skilled staff. There is also a point about responsiveness. It is quite difficult sometimes for councils to ensure that private sector partners really understand the wider requirements of organisations that are ultimately accountable to citizens. For example, if road maintenance is outsourced on a conventional contract, the company repairs the roads on a term agreed with the council, usually on a technical basis. But what happens when the public start to complain about potholes? Should the company respond to the citizen, or should it just stick to the agreed work plan? The challenge is how we create contracts which enable private companies to be responsive to the citizen. Another example of that is the vexed question of parking enforcement. If you compare two services that are routinely outsourced, waste collection and parking enforcement, you see two very different things. With waste collection you simply want the bins emptied—the council wants them emptied, as do the public, and you establish contracts that penalise companies that do not do so efficiently. It is all rather more difficult with parking enforcement. How do you build judgment into contracts so that the contractors do not go out and create some of the more ludicrous examples of parking tickets while ensuring that real parking enforcement takes place? That is not really a question for public satisfaction surveys, but the public need to be sure, whatever and whoever is doing the parking enforcement, that they are treated fairly and that the system is transparent. It is not impossible to create relationships with private contractors that do that, but it is difficult. Another conundrum emerges here. In the social care sector, for example, the Commission for Social Care Inspectorate has shown that, although private and voluntary providers have demonstrated that they are better at reaching national minimum standards than the public sector, users are expressing more satisfaction with the public sector. The same holds true of satisfaction levels recorded by tenants of social housing. They seem to be happier with the local authority, even when other providers are performing better. I am not sure the noble Lord, Lord Warner, is correct when he says people do not care about who provides it—I think they do. The dilemma for local government—indeed, this is in the Local Government and Public Involvement in Health Bill that will be coming to this House in the summer—is that increasingly local authorities willbe required to be more responsive to their local communities. Quite what they will do when the communities say, ““We want residential care or housing provided by the council”” but the Government are making that almost impossible, I do not know. It is an interesting dilemma for the local council. One of the conclusions from all this is that contracts and contractual frameworks have to be drawn up in a way that reflects the desired outcomes, not just performance management of outputs—in other words, a move away from bean counting. In order to do that, it is necessary to work with providers in a transparent and mature way in developing final specifications and contracts. The relationships between the private, voluntary and public sectors are evolving and maturing. Councils are learning that the private sector has a valuable role to play in providing expertise, technology and finance, often on a scale which is difficult for councils to achieve themselves. The private sector has been slower to learn to recognise that local authorities are subject to processes such as statutory frameworks, transparency and even democracy, which have to be respected. There is a lot to learn, and it is essential that local authorities learn from each other. It is even more essential that Parliament and Government monitor, in a strategic way, what is happening. This is not a field where we can afford to allow prejudice and dogma to determine public policy. It must be evidence-based.