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Public Services

My Lords, I only regret that there are not more people taking part in this useful and important debate. This is a large area and we all need to discuss across the parties the experience that we have now gained about the contracting out of public services and the relationship between private public-service providers and the local and central state. We have, as the noble Lord, Lord Warner remarked, discovered that the private sector is not uniformly better than the public sector, as Nicholas Ridley and others always believed. We are also clear that it is not uniformly worse than the public sector, as many in the old Labour Party used to believe. So we now move on to a different set of issues about what is best under what circumstances, how we set the rules for contracting carefully enough and what we think the public really want. We are, after all, talking about a very large sector. I note from one of the briefing papers that the total value of PFI contracts to date is some £46 billion. As an academic, I naturally start by trying to find the underlying principles on which this whole area has developed and the studies in which they are applied. I have to say that I was rather shaken to discover, working not only with the Lords Library but with academics at my own institution and elsewhere and with planners at some of the big private public-service providers, that the detailed studies are thin andthat the underlying principles are not entirely agreed. There is a lot to learn from the experience ofother countries—the Nordic states, Australia, New Zealand, Germany and North America—as well as from the experience that we have accumulated in the past 10 to 20 years. This is, however, a highly technical field with limited transparency, deluged with opaque language and management-speak. I looked at the declared objectives of the Office of Government Commerce, and at the end of it I was not at all sure what most of them meant. The whole question of how we get Members of Parliament and the wider public to understand this field is therefore important. Do we now have broad agreed principles across this field and, if so, where are they? Where are the Government now setting them out? Do we now accept that the same principles work across differing sectors, or that the principles that operate in the health sector, for example, do not really apply in the prison and probation sector? We have learnt from bitter experience that management and contracting principles that operated in the offshore energy sector, when applied to the railway sector, led to very unfortunate relationships between principals and agents and to a breakdown in the necessary mechanisms of trust that were required to maintain rail systems on a proper basis. Are we clear about how far risk should be shared? There has been a whole range of problems about how far risk is offloaded from the public on to the private sector, and what happens when the private service provider fails to continue to provide those services.I note that the Government are accumulating experience about how to monitor the selling on of PFI contracts. I understand from what I have been reading that the Government’s attitude to that is still developing. We do not yet have clear agreement. The noble Lord, Lord Warner, talked about the different categories of private public-service providers: the for-profit companies, the public-interest companies and what he described as the emerging social enterprise sector. That in turn raises a number of questions about which is more appropriate under what circumstances and how government should appropriately deal with the social enterprise sector. That sector is not primarily driven by economic gain but has a range of other motivations and objectives in mind that occasionally cut across the objectives of public policy, as indeed we argued about at considerable length yesterday with regard to the social enterprise sector’s provision of services to the Government on adoption. Reading the new public management literature, I have had some concerns. As a social scientist, I followed the development of public choice economics, recognising that it was a right-wing, libertarian theory masquerading as mathematical economics; it is based on a deep mistrust of government and a desire to shrink the state and public services and to pursue a libertarian agenda. I was even more concerned when I came across the conclusion of one of the most useful volumes surveying experience of new public management in five different countries. It says: "““The supermarket state model is a central feature of NPM … The supermarket model presumes that the government and the state in general have a service-providing role, with an emphasis on efficiency and good quality, and conceives the people as consumers, users or clients””—" not citizens. It goes on to state that, "““instead of the state controlling society on the basis of a democratic mandate from the people, society more directly controls the state through market mechanisms. The public are viewed as sovereign consumers or clients””." That cuts exactly across the Government’s citizenship agenda, and I suspect that it is one of the reasons why that agenda is in so much trouble. We need to question a number of the underlying principles in which we are engaged. Public choice theory is based essentially on mistrust; it is based on the idea that you can never trust a government servant or bureaucrat, that contractual relations are the only basis on which to operate, and that those with whom you deal are motivated primarily by economic gain. However, trust is essential in long-term partnerships of the kind that involve the provision of public services. Most people are motivated by a mixture of economic gain, job satisfaction, a sense of personal and social responsibility, and altruism. We need to recognise that. For example, prison management that is motivated purely by economic gain is the last thing that we want. In talking to a number of people within Serco, I was relieved and happy to discover that they are much concerned with other quality issues in the management of private prisons, as they should be. But how does one then write the contracts in such a way as to ensure that one does not simply go for the cheapest model and so as not to set a whole range of standards because one does not entirely trust one’s private contractor? As we have seen with GP contracts and the rising salaries of top civil servants, if one assumes that only economic gain motivates people, one slips very easily into a model in which one gives higher salaries to those at the top and squeezes the wages of those at the bottom. The evidence of opinion polls is not that citizens want maximum choice; it is that they want available pubic services in their local communities. That is very much the case in the public’s attitude to schools. A range of other values is involved. The quality of contracting, and of monitoring the contracts, has so far been highly variable. As a social scientist, I am familiar with the development of principal/agent theory, in which the Government are the principal and the private contractors are the agents, but I doubt whether principals always understand how to control the agent, and I suspect that the vast expansion of consultants’ advice to government during the past 10 years has partly been a matter of government trying to catch up with private public-service providers in terms of monitoring what has to be done. Contestability, as the noble Lord, Lord Warner, remarked, was an important part of the model that, I think most of us will agree, was well worth introducing into a Prison Service that was stuck in a range of old-fashioned attitudes, but the problems that public and private prisons now recognise are not to do with the quality of the Prison Officers’ Association or of public or private provision; they are a matter of overcrowding, which comes from other aspects of public policy. How long term do contracts need to be? If we have short-term contracts, the building of the trust relationships that we require breaks down. I do not want to rehearse the arguments that we will have after the Easter Recess on the Offender Management Bill, to which the noble Lord, Lord Warner, referred, but an effective offender management system, in which relationships between those in the courts, within local government and inside and outside the prisons require to be maintained over a long period, is not easily compatible with short-term contracting and contestability of public services. The target mentality is worth introducing, but we have also been made aware by our economist friends and acquaintances that the imposition of targets and the measurement of particular statistics and indicators affect behaviour in ways that may not be entirely intended. I heard at a meeting of the Royal Society of Arts last night that one of the reasons why the number of students who are continuing the study of history through to GCSE and A-level is going down is that schools discourage children from going on with history when it becomes optional, because they are afraid that some of the students might not get the A to C grades that the schools need for their league tables. They therefore push them off into subjects that they regard as being easier for them. Some real issues are at stake, one of which is accountability. When we discuss the Offender Management Bill, we shall come to the question of how far private prisons are allowed to exert state authority over the prisoners for whom they are responsible and, similarly, over community punishment. The British Medical Association notes in its briefing, which we have received today: "““Evidence is not currently available to compare clinical standards, such as complication rates, in NHS Treatment Centres and ISTCs””." It goes on to state that there is, "““a lack of robust audit data on outcomes and productivity””." Another issue is equity. A study on introducing the theory of new public management in public housing notes that one of the problems is that it does not necessarily include social inclusion and social justice, which are important in the provision of social housing. A further issue is whether provision will be local or central. When we discuss the Offender Management Bill, one of the issues with which we on these Benches will be concerned is the extent to which contracting will remove authority from local government and take it up to a regional and central level. An underlying question is whose satisfaction we are talking about. Is it that of the consumer, the Treasury—in terms of efficiency—or the citizen? Are these interchangeable or distinctive? The economist’s model is of the well informed customer seeking the widest possible choice of services, but, for the many who are not well informed, this may not be the ideal model. What is our shared responsibility for them?